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


  • Bitros, George C.
  • Batavia, Bala
  • Nandakumar, Parameswar


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.

Suggested Citation

  • Bitros, George C. & Batavia, Bala & Nandakumar, Parameswar, 2014. "Economic crisis in the European periphery: An Assessment of EMU Membership and home Policy Effects Based on the Greek Experience," MPRA Paper 60596, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:60596

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    References listed on IDEAS

    1. Martin Hellwig, 2011. "Quo vadis, Euroland? European Monetary Union between Crisis and Reform," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_12, Max Planck Institute for Research on Collective Goods.
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    4. André Sapir, 2011. "A Comprehensive Approach to the Euro-Area Debt Crisis," ULB Institutional Repository 2013/174297, ULB -- Universite Libre de Bruxelles.
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    7. Brissimis, Sophocles N. & Leventakis, John A., 1989. "The effectiveness of devaluation: A general equilibrium assessment with reference to Greece," Journal of Policy Modeling, Elsevier, vol. 11(2), pages 247-271.
    8. Manfred Gärtner & Björn Griesbach & Florian Jung, 2011. "PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 288-299, August.
    9. Neary, J Peter & van Wijnbergen, S, 1984. "Can an Oil Discovery Lead to a Recession? A Comment," Economic Journal, Royal Economic Society, vol. 94(374), pages 390-395, June.
    10. Paleologos, John M., 1993. "An Investigation on the Effectiveness of the Devaluation Policy in the Case of the Greek Economy: 1975 I - 1991 I," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 46(2-3), pages 247-258.
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    More about this item


    Economic crises; economic integration; balance-of payments deficits; budget deficits and indebtedness; structural imbalances;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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