Adjustment in the Eurozone Periphery: The Case of Greece

Year 2017, Volume: 3 Issue: 1, 55 - 92, 01.04.2017

Lalita Som

Abstract

Since 2009, Greece has been at the epicentre of the Eurozone crisis. However, in 2008 and 2011, several Eurozone members (like Portugal, Ireland, Greece, and Spain) and Iceland were equally unable to repay or refinance their government debt. All of these countries were forced to secure financial assistance from third parties such as other Eurozone countries, the European Commission, the European Central Bank (ECB), the Nordic fund (in the case of Iceland), or the International Monetary Fund (IMF). From 2013 onwards, all of these countries except Greece regained complete lending access to financial markets and ended their bailout programmes as scheduled without any need for additional financial support. The EU-IMF economic adjustment programme aimed to reduce the public deficit and debt, primarily through severe cuts in public expenditure and structural reforms. Although Greece returned to modest growth in 2016 through the ongoing reforms and official financing from third parties, the extensive fiscal consolidation and internal devaluation have come at a high cost to Greek society, as reflected in declining incomes and exceptionally high unemployment. This paper examines why the economic adjustment policy has been inadequate for addressing Greece’s financial and structural weaknesses. It analyses the main aspects of the adjustment programmes in countries like Iceland, Ireland, and Portugal; assesses their economic impact on these countries; and compares these outcomes to those in Greece

Keywords

Economic Adjustment, Devaluation, Eurozone, EU-IMF Financial Assistance.

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