Economist Dimitrios Tsomocos on the bailout plan failure, the Troika, and the impact of the strong euro
What are the causes of the Greek financial crisis? Why did the IMF plan fail to solve the problem? How can the crisis be resolved? These and other questions are answered by University Reader in Financial Economics at Saïd Business School and a Fellow in Management at St Edmund Hall, University of Oxford, Dimitrios Tsomocos.
The Greek financial crisis that commenced in 2010, even though the recessionary tendencies have started in 2008 is unique in the history of financial crises, in the sense that the decrease of GDP from 2008 to 2014 was more than 26%, unemployment increased tremendously and quite rapidly, emigration increased tremendously and quite rapidly, and more importantly, this crisis has lasted for at least 6 years.
One has to bear in mind that [in the case of] the greatest financial crisis in human history, which is the great crash in the United States in 1929, after three years the economy started stabilizing, and in fact after four years the economy started growing. In stark contrast the Greek economy was in constant recession (in fact, one might arguably claim that it arrived at a depression level) for more than 6 or 7 years.
The IMF plan, the Troika plan, which was a combination of the European commission, the European central bank and the IMF, was to implement internal devaluation, whereby austerity measures were introduced in Greece for fiscal consolidation reasons and to reduce government expenditures. And despite the precipitous drop in government expenditures of more than 30% and the reduction of the budget deficit for over 12%, still it didn’t work out. What were the reasons for that?