Political and Institutional Roots of the Greek Debt Crisis

Sumer, Fahrettin (2015) Political and Institutional Roots of the Greek Debt Crisis. Political and Institutional Roots of the Greek Debt Crisis, 1. pp. 1-29.

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Abstract

Greece’s recent financial or sovereign debt crisis has been the severest one in the Eurozone and raised multiple concerns about the future of the Euro as well as the functionality of the EU’s mechanisms and institutions. Various deteriorated economic variables, such as large structural fiscal deficits that led to accumulated sovereign debt beyond the Greek government’s fiscal means, the fall of Greece’s significant shipping and tourism industries due to the global financial crisis of 2007-2010, and the relative decline of national competitiveness, have been cited as immediate causes of the crisis. This paper, informed by Public Choice economics, traces the roots of the Greek sovereign debt crisis within the country’s external and domestic institutional & political contexts. Institutional environment determines the incentives and conditions of what is possible for self-serving politicians and bureaucrats. Governments can be self-serving and self-promoting and do not always promote the social welfare. Voters are also self-interested and choose candidates that serve their narrow group interests. In Greece’s political and institutional contexts, Greek politicians acted according to their political interests and ignored the economy’s long-term health. They granted rents to multiple rent-seeking interest groups in Greece rather than acting for the overall well-being of the country. They did not or could not adopt economic reforms and wise economic policies that could have prevented the crisis. In 1992, members of the EU signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels, but several members, including Greece, have failed to stay within the confines of the Maastricht criteria. The European monetary union has been created without a fiscal and banking union among the Eurozone countries. The EU’s political and institutional contexts also permitted the adoption of unwise policies that are harmful for the county’s economic health. Actions and decisions of these self interested actors within these political and institutional contexts made the country economically and financially vulnerable to the crisis.

Item Type: Article
Uncontrolled Keywords: Keywords: Greek Sovereign Debt Crisis, The European Monetary Union, Political & Institutional Causes of Financial Crises.
Subjects: D History General and Old World > DF Greece
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JF Political institutions (General)
J Political Science > JK Political institutions (United States)
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mr. Fahrettin Sumer
Date Deposited: 20 Apr 2016 05:35
Last Modified: 20 Apr 2016 05:35
URI: http://eprints.auis.edu.krd/id/eprint/20

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