The chapter focuses on the circumstances leading to the decision of the European Council, in July 2011, to initiate the restructuring of Greek debt, involving the voluntary contribution of private investors. Amidst intense party political infighting and mounting economic problems in Greece, European leaders performed a major policy u-turn accepting the inevitability of a debt write-off, which, until then, was firmly off the agenda. In exchange the Greek government accepted the intensification of its economic adjustment programme, through a revised Memorandum. These decisions gave European leaders some breathing space, but the underlying problems of economic governance in the Eurozone remained.

The chapter discusses the circumstances under which the Greek crisis spread to the European Union. It is argued that, despite the creation of the European Financial Stability Facility (EFSF) in May 2010, the financial markets remained sceptical over the sustainability of debt in a number of Eurozone countries. This led both Ireland and Portugal to resort to the EU/IMF for a bailout package.

The chapter provides an assessment of the two Memoranda that accompanied Greece’s bailouts. It is argued that initial assessments over the sustainability of the Greek debt were overly optimistic and based on projections that did not account for the realities of the Greek economy. The same is also true for some of the assumptions of the second Memorandum. The severe austerity paradigm that underpinned the two programmes was based on a defensive reading of the crisis and a high degree of moralism. Fiscal discipline, although necessary, does not, on its own, constitute a credible exit strategy from the crisis.

The chapter discusses the negotiations leading up to the Eurozone Summit of 26 October 2011. It highlights the prominent role of Germany and France in the negotiations and the inability of the Greek government to make a substantial contribution to them. The decision to trigger the Private Sector Involvement (PSI) clause and the corresponding haircut in the value of Greek debt held by private investors did not dispel all doubts over the sustainability of public finances in Greece. The agreement over the financing of the EFSF also raised doubts on whether its firepower was sufficient to deal with a potential spreading of the crisis.

The chapter discusses developments in the Eurozone during the early months of 2012. It is argued that in Greece the Papademos government was fatally undermined by the unwillingness of the coalition partners to endow it with a longer-term mission. Yet, the prospect of a new election halted the domestic reform momentum. At the European level, hopes for the containment of the crisis did not materialise as both Italy and Spain remained under severe pressure from the markets. The prospect of an imminent Lehman Brothers moment for the European economy alarmed the US which pressed Germany for a relaxation of austerity in the Eurozone, but to no avail. The election of Hollande in France raised expectations in Greece that the German policy was about to be reversed. Such expectations, however, proved rather unrealistic.

The chapter discusses the election of 6 May which brought a seismic change to the party system of Greece. It is argued that New Democracy’s underperformance in the election was due to the inconsistencies of its leadership which had initially opposed the Memorandum and subsequently made an embarrassing u term. PASOK too was punished by its traditional power base for not defending the pre-crisis status quo. Anti systemic parties, on the other hand, made significant gains. The electoral impasse that followed necessitated another general election, causing widespread uncertainty over the future of Greece in the Eurozone.

The chapter reviews the conditions under which Greece entered the Eurozone in 2001. It discusses the controversies surrounding the manipulation of Greek statistics and sets the scene within which the Greek debt crisis unfolded

This chapter discusses the strategy of the Greek government in its efforts to avert an escalating economic crisis during the first months of 2009. It is argued that the message sent by Athens over the nature of its economic troubles was unclear. So was its preference over who should lead a potential rescue of the Greek economy, with both the EU and IMF receiving conflicting signals from Athens.

The chapter reviews the evolution of the Greek crisis on the first anniversary of the Memorandum. It is argued that, international ‘good will’ towards Greece began to weather amidst fears over the reliability of the Greek government to implement the necessary reforms. Domestically, the government’s efforts to forge consensus were undermined by the opposition. In response the PM stated toying with the idea of a referendum as a means of enhancing the legitimacy of government policy.

The chapter discusses the negotiation of Greece’s second Memorandum which accompanied the country’s additional financing, worth 130 billion Euros. It is argued that the three parties supporting the government were excessively preoccupied with partisan self-interest, thus undermining the credibility of the country’s negotiating strategy with its creditors. Mistrust towards Greece was epitomised by German suggestions that the EU should appoint a Commissioner with executive powers over the drafting of the Greek budget.