This chapter discusses the economic programme of PASOK in the run up to the 2009 election. It argues that the party failed to realise the seriousness of Greece’s economic peril and did not communicate to the electorate the hard choices ahead.

The chapter examines the provisions of Greece’s first Memorandum of Understanding with the IMF and the EU. It is argued that the targets set by the Memorandum were not realistic and the severity of the envisaged macroeconomic adjustment was unprecedented in the developed world. It is also argued that the Greek government failed to negotiate with its creditors a deal that would be better tailored to the socio-economic realities in the country.

The chapter discusses the handling of the crisis over the Spanish banking sector in June 2012.It is argued that this marked an important turning point in the evolution of the Eurozone crisis, as the German policy prescription came under concerted criticism. The decisions of the European Council of 29 June 2012 offered a new paradigm in the management of the crisis, not least because of the decision to allow the recapitalisation of European banks directly through the EFSF and the ESM. This also paved the way for a banking union within the Eurozone.

The chapter reviews the record of economic reform implemented in Greece during 2010. It is argued that confidence in the Greek economy began to erode further as a result of the government’s inconsistencies, but also due to the fact that many of the fundamental assumptions of the Memorandum proved erroneous. These uncertainties fuelled speculation about a possible restructuring of Greece’s debt.

The chapter discusses the difficulties in the implementation of the ‘July agreement’ and the spreading of the crisis to Italy and Spain. Central to these discussions was the extent of the losses inflicted on private investors holding Greek debt. In Greece the government’s negotiations with the Troika stalled, as the opposition calls for the re-negotiation of the Memorandum intensified. The Greek government’s position on the PSI appeared contradictory.

The chapter discusses the tasks facing the new coalition government in Greece, under Loucas Papademos, in the aftermath of Papandreou’s resignation. It is argued that government was confronted with a huge workload, including the negotiation of the terms of Greece’s second bailout, the implementation of the PSI programme and the recapitalisation of Greek banks. This agenda had to be pursued against a background of growing suspicion on behalf of Greece’s international partners and increasing public hostility within Greece.

The chapter discusses the attempts of the Greek government to improve the country’s profile amongst its partners as speculation grew that Greece’s might be pushed out of the Eurozone as a means of restoring confidence in the Euro and applying pressure on Spain and Italy to pursue further reforms. Owing to a number of concessions by the Greek government in the Eurogroup meeting of October 2012, the climate towards Greece began to change for the better. Yet disagreements between the EU and the IMF over the sustainability of the Greek debt, raised fears that the latter may opt out of the Greek programme. These differences were resolved in a compromise stuck at the Eurogroup meeting of November 2012, which allowed for the partial restoration of confidence in the Greek economy.

The chapter traces the early economic record of PASOK following its electoral victory in 2009. It argues that the new government failed to act quickly and convincingly in order to calm fears over the health of the Greek economy. Instead the government wasted its energies in diverting attention away from the real economic problems facing the country.

The chapter discusses the political context within which the financial crisis in Greece developed. It is argued that the country’s political leadership became complacent and was unable to either foresee the crisis or articulate a credible plan for its solution. These shortcomings reveal longer-term pathologies of Greek politics rooted in history.

The chapter discusses the Troika report on the sustainability of Greece’s debt, published in October 2011. In there, the country’s creditors acknowledged that support for the Greek economy should be extended beyond the provisions of the July 2011 package. This admission of failure undermined the credibility of the programme and created a widespread impression amongst public opinion in Greece that the government had lost control. In the EU, much of the discussion centred around the financing of the EFSF, where France and Germany openly disagreed, thus further aggravating fears that the Eurozone could not speak with one voice on the crisis.

The chapter discusses the June 2012 election and the increasing fluidity of the Greek political scene. It is argued that the election result made it imperative that pro-European parties should form a new coalition government. Domestically calls for a renegotiation of Greece’s bailout terms grew louder, although the maximalist tone of these demands met with an outright opposition by Germany and the ECB. Amidst intra-coalition disagreements over how best to deal with the intransigence of Greece’s creditors, the PM decided to stick to the deficit reduction commitments previously undertaken by the Greek government.

The chapter discusses the economic record of the New Democracy government in Greece during 2004-2009. It argues that much needed structural reforms were abandoned during that time and that the government lost control of macroeconomic policy, leaving Greece perilously positioned during the onset of the global financial crisis.

The chapter discusses the increasing international scepticism over the sustainability of the Greek debt during the first half of 2011, despite an agreement by the European Council to improve the repayment terms of Greece’s 110billion Euro loan. The commitments undertaken by the Greek government in the field domestic economic reform (particularly privatisations) were unrealistic. At the EU level, the launch of the Euro Plus Pact, failed to calm nerves in the financial markets.

The chapter discusses the decision of the Greek Prime Minister, George Papandreou, to call for a referendum on the decisions of the Eurozone Summit of 26 October 2011. It argues that the referendum call was a mistake that undermined the credibility of the government both domestically and abroad. It also severely endangered the position of Greece as a member of the Eurozone and the European Union. The referendum call was reflective of a wider lack of leadership that plagued Greece’s response to the crisis from its very outset.

The chapter discusses the efforts of the European Council to articulate a holistic plan for the resolution of the Eurozone’s problems. The proposals of the German government on a Competitiveness Pact, however, met with opposition within the EU, leading to further delays in its response to the crisis.