“When the Bough Breaks” Making Sense of the Greek Economic ‘Waterloo'

Abstract

The purpose of the paper is to firstly provide a conceptual perspective on the existing European economic environment and secondly, to delineate the disastrous economic policies responsible for derailing the entire Greek economic establishment. The study expounds upon the very framework that EU policy has been conducted by scrutinizing the way some main economic indicators have fluctuated over the years. The main focus of the economic policies adopted by the EU countries should be on the strengthening of the monetary union and the euro in terms of strengthening the productive, technological, qualitative and redistributive efficiency and not in terms of weakening unions, dislocating labor market institutions, degrading and transforming the social state to “state charity”. The distorted model of development that has been religiously adhered to for many years, has caused production as well as primary surpluses to shrink dramatically, which in conjunction with inappropriate policy alternatives contributed to a prolonged recession that we are currently witnessing.  The fiscal restructuring that is currently underway in Greece is bound to burden further the already crippled economic activity in so far as the new tax reforms constrain dramatically the purchasing power of its citizens. The latter in conjunction with the deregulation of the labour markets will reduce real wages markedly, causing in affect further decline in private consumption. The resulting decrease in aggregate demand will set off a self-feeding mechanism of declining production and increasing unemployment.Keywords: EMU; Greek Economy; Economic CrisisJEL Classification: E65