Economic crisis in the European periphery: An Assessment of EMU Membership and home Policy Effects Based on the Greek Experience

Bitros, George C. and Batavia, Bala and Nandakumar, Parameswar (2014): Economic crisis in the European periphery: An Assessment of EMU Membership and home Policy Effects Based on the Greek Experience.

Abstract

Our objective in this paper is threefold. First, to identify the major common shocks that hit these countries upon entry into the EMU. Second, taking Greece as our case study, to construct a simple macroeconomic model of the policies Greek governments pursued in the presence of these shocks, and to employ its solution so as to highlight the outcomes that were expected to result. From this endeavor, we find that the policies which were put in place led unavoidably to a severe economic crisis and eventual bankruptcy. Finally, in view of these findings and what happened in 2009,we raise and attempt to answer questions like, for example: How can we explain the policies that were adopted in the advent of monetary union shocks? Could they have been anticipated? And if so, why did they escape the attention of the designers of the Maastricht Treaty? The answer to which we are led by the analysis is that the shocks in all these countries were perceived by their governments as opportunities to hold on to their entrenched positions. That this happened, we conclude, reflects a failure in the mechanisms of economic convergence that were embedded in the Maastricht Treaty as well as in the effectiveness of European Union (EU) institutions that were empowered with their enforcement.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic crises, economic integration, balance-of payments deficits, budget deficits and indebtedness, structural imbalances
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices

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