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Tras su ingreso en la Comunidad Económica Europea (actual UE), Grecia se propuso entrar en el primer bloque de países que daría un paso más en la integración económica y adoptaría una moneda común: el Euro. Sin embargo, este proceso no fue fácil ya que se establecieron una serie de criterios de obligado cumplimiento para todos aquellos países que quisieran adoptar la moneda común. Pese a los esfuerzos realizados desde el gobierno, el país no logró superar el primer examen y tuvo que ser repescada varios años después, tras no tenerse en cuenta algunos de los criterios mencionados anteriormente. Sin embargo no iba a ser un camino de rosas para Grecia, que tras el estallido de la crisis económica a finales de la década de los 2000 se descubrió que el gobierno estuvo falseando las cuentas del estado durante años, ocultando grandes cantidades de deuda. Esto provocó que, ante la desconfianza de los mercados, tuvieran que pedir tres rescates financieros con el fin de evitar una bancarrota del país. Tras sucesivas crisis políticas, económicas y sociales todo parece volver a la normalidad, ya que se prevé mayor crecimiento y estabilidad económicos durante los próximos años.

After entering the European Economic Community (current EU), Greece decided to enter the first block of countries that would take a step further in economic integration and adopt a common currency: the Euro. However, this process was not easy since a series of binding criteria were established for all those countries that wanted to adopt the common currency. Despite the efforts made by the government, the country failed to pass the first examination and had to be re-harvested several years later, after not taking into account some of the criteria mentioned above. However, it was not going to be a bed of roses for Greece, which after the outbreak of the economic crisis in the late 2000s found that the government was distorting the accounts of the state for years, hiding large amounts of debt. This caused that, before the distrust of the markets, they had to ask for three financial bailouts in order to avoid a bankruptcy of the country. After successive political, economic and social crises everything seems to return to normal, since it is expected greater economic growth and stability over the coming years.

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The main objective of this work is to investigate the process that led Greece to take a step further in the economic integration within the European Union, which made the Aegean country adopt the euro, in addition to the management of the crisis that affects the country since 2009. In this aspect we will study what economic and fiscal measures the Greek government adopted to achieve the objectives established in the Maastricht Treaty, the result of these policies and the result of the first convergence examination carried out to the countries of the union in spring of 1998. From this examination came the insufficient results that made Greece have to extend its monetary integration, which was finally accepted in the year 2000.
Another of the most important points of this research work is the impact that the economic crisis had on the country, in addition to the impact that Greece had for the rest of the countries of the European Union. We emphasize on this point the successive rescues that the Hellenic government had to request to achieve solvency and avoid the bankruptcy of the country, since after the scandal caused after knowing the manipulation of the national accounts of Greece by their rulers, the credibility of the state before the international financial markets it was very reduced and the country had to pay very high interest to its creditors to be able to finance itself. In addition, of the aforementioned financial bailouts we will talk about the conditions imposed from Brussels to access them, as well as the social and political costs that have shaken the foundations of the state.
For the realization of this work a case study has been used, since what we want is to analyze in depth both the process of incorporation into the monetary union as well as the effects of the crisis and its possible solutions, besides explaining how and why what of the issues addressed in the project.
To carry out this work, we have focused on gathering information, both qualitative and quantitative, from the different official bodies, such as the European Commission, Eurostat, ECB, IMF, Greek ministries, etc., as well as newspaper articles of special relevance. In the first place, from the official institutions we have been able to extract statistical tables and databases where quantitative information regarding the macroeconomic data of Greece appears with clarity and accuracy. In these sources you can also find reports made by supranational institutions that evaluate the economic-financial situation of the country in question, in addition to establishing forecasts in the short and medium term. On the other hand, the official information will be accompanied by articles and objective analyzes of journalists and researchers, which will serve to add more information to the existing one.
The work done is divided into several parts. First, the theoretical framework, which will serve to give basis to the work that we will develop later. In this case, the base focuses on economic integration, on what levels it has and on what basis each of them, why countries decide to integrate into economic blocks and what advantages derive from these associations. In addition, we also talk about several theories related to economic integration, such as the theory of optimal monetary unions and the theory of customs unions.
Next, the second part deals with the path that Greece followed to reach the monetary union, focusing mainly on the fulfillment of the convergence criteria established in the Maastricht Treaty. This section will explain the criteria mentioned above and Greece’s difficulties in complying with them.
The third part focuses on the economic crisis that especially affects the country we are studying. It explains how the problems appeared, what consequences they had and what measures were taken to reduce the alarming levels of deficit and public debt that affected the state. It also details the characteristics of each of the three bailouts that both European institutions and the IMF contributed to Greece to clean up their accounts and what measures had to be decreed by the government in exchange for receiving financial aid. All this accompanied by the results of the elections held during this period of crisis, which did nothing but create uncertainty both inside and outside the country.
Finally, the two final sections will serve to clarify both the results of the work and the conclusions, which will give us an idea of what has happened in Greece and how they have reached a situation of unsustainability never seen before.

The objective of this paper is to study the economic integration of two or more countries and the different phases of integration, as well as the characteristics and the level of commitment existing between the member states.
Economic integration is the ‘process in which two or more states in a broadly defined geographic area reduce a range of trade barriers to advance or protect a set of economic goals’ (Burges, 2007).
According to Vossos (2017) the main objectives of economic integration are:
? Increase of trade. If at the time of importing foreign goods, they are subject to the payment of tariffs, this tax will have an impact on the final price. Therefore, its partial or total elimination will make the product cheaper, thus gaining competitiveness and offering exporting companies an opportunity to trade in economically integrated areas.
? Allowing customers to spend more. With the elimination of tariffs, the products will have a lower cost, and thus consumers will enjoy greater purchasing power and greater activity in the markets, allowing them the possibility of acquiring a greater number of goods and services.
? Movement of capital. With this, it refers to the possibility of moving capital and assets freely over the countries. This basic feature of economic integration eliminates barriers to investment, and in countries with a common currency, eliminates the cost of currency exchange, allowing a greater development of the economies of the countries.
? Economic cooperation. This aspect emphasizes the collaboration between partner countries, since the fall of the economy in one of them can affect the rest. Therefore, economic ties between countries of the same economic bloc are more reinforced and aid is more immediate.
In addition, Maesso Corral (2011) adds that the main reasons why countries decide to undertake an integrating process are linked to different motivations. First, the country seeks to find a series of positive aspects that mean an increase in the welfare of its citizens. In fact, economic integration has been considered as an extension of free trade and the dismantling of protectionism. And finally, the integration is also due to social, strategic, and political aspects.
To add in, the author defines the different stages thar economic integration goes through:
? Preferential trade agreement. It is the most elementary phase of integration. It consists of a pact by which a country offers commercial advantages to another country or group of countries. Generally, these agreements usually consist of a significant reduction of tariffs on certain goods. According to López (2016), this type of agreement does not have to affect all the goods and services traded. Therefore, “they are not considered to be regional integration agreements because they do not entail the elimination of all trade barriers and because they do not entail the adoption of a single commercial policy. The problem with these agreements is that they are in direct opposition to the WTO principle of most favored nation, given that they are embodied in privileges that can not be extended to third countries”. Furthermore, he adds that the European Union carries out these agreements with third countries, and up to a total of 178 states have been benefited thanks to the Generalized System of Preferences of the Union.
? Free trade Area. In this phase, a group of countries decides to eliminate existing tariff barriers, but each of them remains independent to establish tariffs for products from third countries. This agreement is a great advantage when trading between partner countries and favours the regional development. However, the author states that there are drawbacks in this phase: “import products may enter the area through the member with lower tariffs and then circulate freely among the countries of the area”. The author affirms that solutions can be established by imposing rules of origin that allow trade liberalization only to benefit the member countries of that area.
? Customs union. This process, like the previous one, consists in suppressing trade barriers between member countries of the bloc, but it differs in that, in this process, the group of countries decides to establish common tariffs for all imported goods from the rest of the world. This allows solving in a more effective way the problem that arises in the previous stage.
? The elimination of barriers not only implies the freedom of trade, but also the freedom of means of production, thus forming the common market, where goods, people and capital can move freely. Free movement of workers consists in the suppression of any type of visa, which allows the citizens of the member countries of an economic bloc to have freedom of residence and work in any member country of that bloc, in equal rights that the workers of the receiving countries.
? The next step is called economic and monetary union. In this phase, the author defines it as “a common market in which we proceed to the coordination of economic policies and the establishment of common policies aimed at promoting regional development and reducing internal disparities.” For its part, the monetary union does not refer exclusively to the creation of a single currency, this process is not essential. To achieve this union without the establishment of a common currency, the assumptions of complete freedom of movement of capital, permanently fixed exchange rates, and convertibility of each and every one of the currencies of the countries that make it up must be given.
? Full economic union, or political union. This last phase has more political than economic dyes. According to Moussis (1999, 201) “It involves common home and judicial policies and a common foreign and security policy. According to the definition given above, a common policy entails a set of rules, decisions, measures and codes of conduct adopted by the common institutions set up by a group of states and implemented by the common institutions and the member states. A common policy does not exclude national policies, which continue to exist in all areas not covered by the decisions and rules agreed by the common institutions. Its development, however, requires the implementation by all the participating states of the common home and foreign policies agreed by the common institutions and the monitoring of this implementation by the common institutions. As long as these requirements are not met in certain sectors, political union, even though provided in a Treaty, is deficient or inexistent. In its place there may only exist intergovernmental political cooperation, leaving practically all freedom of action to the participants”.
Also, the author mentions the earnings and costs associated to economic integration. With respect to the early phases related to the customs union, the main positive effects that it presents are mainly commercial.The first is to take advantage of the comparative advantages related to international trade, in which a country will present greater benefits if the economic differences with its partner countries are considerable. On the other hand, the elimination of trade barriers allows access to economies of scale, which allows industries to reduce production costs by entering larger markets. All this leads to increased competition, which provides greater welfare to consumers, to find a greater supply of products at lower prices; to an elimination of the inefficiency in the companies that enjoyed little or no competition in autarky situation; elimination of segmented markets; and greater technological development.
In the most advanced phases of integration, the positive effects combine the use of economic policies carried out by governments and the positive effects of greater freedom of movement of capital. With respect to greater liberalization, this allows investors to obtain greater profitability and makes the risk lower. The harmonization of fiscal and monetary policies means that the governments of the member states elaborate policies with greater credibility, which benefits the economically poorer countries, allowing them greater growth.
However, economic integration does not only present positive aspects. The costs of integration are closely related to the structural differences of the member countries, mainly because the benefits are not distributed with equity and the different degree of development of each of the states. Another of the main drawbacks is the loss of monetary policy in the case of adopting a community currency, which prevents competitive devaluations. The devaluation of the currency allows to increase exports and reduce the trade deficit with the exterior (Gilbert, 2017), allowing a faster economic recovery. Martín (2017) discusses a possible solution to alleviate the balance of payments problem through an internal devaluation, consisting of a downward reduction in wages and incomes in order to reduce deficits and improve productivity. However, the author states that although the measure is effective, it presents more negative aspects than a devaluation of the currency, since the adjustment mainly affects the workers, worsening their standard of living and their welfare.
Another important theory to emphasize is the theory of the customs unions of Viner (1950). In it, the author defines the effects of creation and diversion of trade. In the first, trade creation occurs when a country stops producing a good to import it from a partner country, which is cheaper, thus improving the level of welfare. In the second case, the country stops importing goods from a non-partner country to import them from a partner country, thus decreasing the level of welfare.

“We start from an initial situation in which (S) and (D) are the supply and demand of good X in country A. Good X is also produced in countries B and C, with prices, respectively: pc = 30 € , pb = 40 and pa = 50. Initially, country A had established a tariff t = € 15 on imports, so that the demand 0x2 is met with 0x1 domestic production and with the import of the cheapest producer, country C in the amount x1x2 at a price equal to price of country C plus the tariff pc + t = € 45. Suppose now that countries A and B form a customs union, eliminating tariffs among them and establishing a common external tariff vis-à-vis the rest of the world t = € 15. Now, the new demand of country A, 0x4, is met with 0x3 national production and with the import of country B of the quantity x3 x4 at a price pb = 40 €, higher than the country price Cpc = 30 €, but lower at the price of country C plus the tariff pc + t = € 45. The main result derived from the formation of the customs union is the increase in trade between the member countries of the union, A and B, which responds to the combination of different effects:
? Creation of trade in the magnitude x3x1.
? Trade deviation in the magnitude x1x2.
? Trade expansion in the magnitude x2x4.
? The net effect on the level of welfare will be the difference between:
? – The gains derived from the creation of trade (the transition from a less efficient producer A to a more efficient producer B), which is represented by the triangles ABC and DEF.
? – The losses derived from the trade diversion (the transition from a more efficient producer C to a more efficient producer B), which is represented by the rectangle CGEH.
The combination of the static effects will be the one that determines if the formation of the customs union benefits or harms the countries that integrate it.” (Maesso Corral, 2011).

To add in, in his theory the author concludes that economic integration is not always beneficent, as the welfare level depends on several factors.
A. The greater the number of countries and the size of the block of economically integrated countries, the greater the possibilities for generating work and creating trade.
B. The higher the previous tariffs, the greater the chances of creating trade once they are eliminated.
C. As common external tariffs are reduced, there is less chance of diverting the exchange of goods, and vice versa. To add in, Kemp and Wan (1976) shows the scenario of setting a common tariff that benefits partner countries without harming third countries’ economy.
D. If the sustainability grade is high, it will also be higher both the competition between countries’ industries and the trade creation.
E. If supply and demand elasticity are high, trade expansion probabilities will be also high.
F. If trade volume of partner countries is high before the integration agreements, trade deviation probability will be lower. However, this idea has been disputed by several economists, such as Krugman (1993), who highlights the importance of location problems and how this affects the conclusions of economic theory and economic policy decisions.
G. If number of economic blocs is high, the trade deviation will be lower. Krugman (1991) stresses that a set of smaller commercial blocks will establish lower tariffs and, therefore, the impact on welfare will be lower.
Finally, we should highlight the theory of optimal monetary unions, by Mundell (1961), which describes the optimal characteristics for the creation of a common currency and affirms that in a geographical region it maximizes efficiency if it uses a single currency. According to the author, asymmetric shocks between regions harm the real economy, therefore, it would be necessary to create a flexible exchange rate mechanism to be able to adjust to the characteristics and particularities of each of the regions.
For this, an Optimal Monetary Zone must have four essential characteristics:
? Flexible labor market, which includes freedom of movement for workers throughout the economic zone, while suppressing any type of institutional or cultural barrier that prevents free movement.
? Open and flexible markets, both in wages and in prices. According to the author, it serves to automatically distribute money and goods where they are needed.
? A system that allows distributing all the risk, in order to redistribute the income towards the less favored areas. This measure is difficult to implement since the richest regions would have to contribute money to the poorest, which can lead to interregional conflicts.
? The group of countries must have similar economic cycles, so that the central bank of the union can develop policies common to all the members of the integration area, without having to harm any of them.
Mundell’s ideas have been the basis for the creation of the monetary union in Europe with a common currency, the Euro, which today is a currency used by more than 338 million people in 19 countries of the European Union (EU, 2018) and has made it possible to reduce transaction costs and the risk involved in trading with foreign countries. However, there are experts who consider that the European Union is not an Optimal Monetary Zone. Gutiérrez (nd) Considers that there are serious doubts to consider the Union as an optimal zone, since “Trade between the countries of the EMU is, in general, less than 25% of the GDP of each member, a figure very far from the trade volumes of a true optimal monetary area like the United States. And as for the mobility of productive factors, although a huge advance has been made in the financial integration of the countries of the area, the mobility of labor is not close to the high level that countries would need to adjust their economies to the real disturbances through the migration of work.

The move of the monetary union appeared in 1993, with the signing of the Maastricht Treaty, which provided for its creation with the introduction of a common currency. Despite having delayed the implementation date, in 1995, at a meeting held in Madrid, the member states of the Union agreed to the start of the third phase of the Economic and Monetary Union on January 1, 1999 (European Parliament, 1995 ), whose main effect would be to fix all national currencies with each other and with the Euro, and all financial data would be reflected in Euros, even though they did not yet exist in the form of coins and banknotes. This circulation would be postponed to January 1, 2002 and during the first 6 months, the Euro would co-exist with the national currency of each state, allowing the circulation of both currencies in the stores. However, for a state to use the common currency it must meet a series of requirements. The Maastricht Treaty (Commission of European Communities, 1992) contains a series of criteria related to price stability, government finances, exchange rates and long-term interest rates.
? The inflation rate could not be higher than 1.5% of the average of the three countries with the best figures. For this statistical calculation, the countries that suffered deflation were discarded.
? With regard to long-term interest rates, these could not be higher than 2% of the average of the 3 countries with lower figures.
? Two criteria stand out in the government’s finances: the public deficit and debt had to remain below 3 and 60 percent of GDP, respectively. In both cases and exceptionally, a country could be admitted if its levels were close to the limit and it was expected that these data would decrease.
? Finally, the exchange rate had to be stable and participate in the European Monetary System during the two years prior to the admission exam. In addition to this, a country could not devalue its currency unilaterally.
One of the main objectives that Greece had in the 90s was to be one of the first countries to enter the Euro and during all that decade work was being done to achieve this goal. According to a study of the European Parliament (1998), Greece was the only country in the European Union that did not meet any of the proposed criteria. We will analyze each and every one of them.
At the beginning of the last decade of the millennium, Greece recorded one of the highest rates of inflation in the Union, reaching its highest level in 1990, with 19.9%. However, in the following years this trend began to decline, standing at the end of 1997 at 4.7%. However, at the time of the examination, the fee was still above the amount required by the treaty. The keys to reducing inflation were:
? The practice of very restrictive monetary policies, also known as ‘hard Drachma policy’. According to Detragiache and Hamann (1997) this policy ‘policy has its center both in fiscal consolidation and in a fixed exchange rate. Although the Bank of Greece has also announced targets for other monetary aggregates, the exchange rate has increasingly become the main nominal anchor for the economy. ‘
? The application of fiscal measures intended to raise direct taxes and fight against tax evasion.
? Labor reforms, which allowed the country to be more competitive in the face of markets.
? The progressive liberalization of capital markets.
? The economic recession of 1993, which affected the developed countries, but allowed Greece to enjoy a negative output gap.
Interest rates.
As in the previous point, this magnitude decreased throughout the decade, going from 25% in 1990 to 9.9% in 1997. This decrease was a consequence of the hard Drachma policy, and the relative stability of the currency during these years. , which made his credibility increase. However, despite the good results obtained, these figures remained above the criterion required in Maastricht, marking two points more than the limit.
Budget deficit.
Traditionally, Greece has been a country with great adversities when we refer to expenditure control. In 1993 it reached its highest point, with a maximum of 13.8% over the gross domestic product, due to the high interest rates that the country had to pay at that time. However, as of that date, the government carried out a policy of spending control and privatization of public enterprises, which contributed numerous revenues to the public coffers. This, together with an improvement in the collection of taxes and the persecution of tax evaders, led the state to gradually reduce its debt to 4% of GDP at the end of 1997.
Public debt.
This point was the most complicated for Greece. During the first five-year period of the 90’s this figure increased from 90.1% to 111.6% due to the continuous depreciation of the Drachma and a series of stock-flow adjustments. Despite the fact that debt levels stabilized during the following years, the figures remained very high, exceeding 100% of GDP. This was due to the high interest that the state had to assume in order to finance itself. A convergence report of the European Monetary Institute (1998) states that ‘substantial primary surpluses and significant and persistent total public surpluses will be necessary to be able to decisively reduce the debt ratio to 60% of GDP in an appropriate period of time’
Exchange rate.
In this regard, the Bank of Greece has maintained the Dracma at levels similar to the ECU, however, in 1997, they devalued the currency by around 2%, which caused it to lose value in international markets and calling into question its credibility. . In addition, the Drachma was not in the European mechanism of exchange rates (ERM), breaching the minimum requirement of being two years immersed.
In 1998, the European Union conducted a review of their countries to determine which of them would adopt the Euro in its first wave. According to the report of the European Monetary Institute (1998), of the 15 members that the Union had at that time, 11 met the criteria required to adopt the common currency. However, Greece was the only country that did not pass the exam, as it did not meet all the requirements. On the other hand, the United Kingdom and Denmark refused to adhere by decision of their governments and Sweden stayed on the sidelines because the Crown was not in the ERM and the government had not approved the independence of its central bank (Oppenheimer, 1998).
Reference value Greece
Inflation 2,7% 5,2%
Public deficit 3% 4%
Public debt 60% 108.7%
Long term interest rate 7,8% 9.8%
Source: EMI.
Therefore, Greece became a state with exception, as stipulated in Article 122 of the Maastricht Treaty. Despite the magnitude of the reforms and the subsequent failure to comply with the criteria, the Greek government continued to reform the economy to achieve these objectives. Thus, on January 1, 1999, Greece entered into the mechanism of exchange rates (ERM II) with a quotation of 353,109 Drachmas for each Euro, with a fluctuation band of ± 15%, making a great leap to adopt the Community currency. . Shower prices were subsequently revalued to 340.75 (Giannini, 2010), leaving the latter as the official and irreversible exchange rate (Aparicio, 2001). This last author adds that this decision allowed to create stability in the Greek economy, since the possible risks of the exchange rate are eliminated, in addition to increasing the direct investment in the country, having secured the parity of the Drachma to other stronger currencies, like the Euro or the Dollar.
On the other hand, the continuous economic reforms of Prime Minister Costas Simitis allowed to reach the criteria set in Maastricht. In the year 2000, a report from the European Commission stated that Greece met the necessary conditions for the adoption of the euro, since inflation was around 2% and interest rates fell to 6.4%. which was a high level of convergence with respect to the 1998 review. There were two criteria that were not met, referring to government finances. The public deficit was around 4.1% (OECD, 2018), slightly higher than required, but it was not a problem since there were predictions that this figure would continue in decreasing trends (ECB, 2000).
Percentage of deficit target (above) and public debt (below) on Greece’s GDP in the 1990s.

Despite the fact that in both cases the limits were exceeded, the downward trend of both meant that Greece was finally admitted to the European monetary union. Source: European Parliament (1998).
On the other hand, the percentage of debt was considerably higher than that established in Maastricht, at around 104.9%. However, this last measure was not taken into account, and countries like Italy or Belgium adopted the Euro with worse figures.

Percentage of debt over the GDP of European countries at the time of adopting the euro.

As shown in the graph, most countries failed to meet the debt target at the time of their accession to the community currency. All the parameters date from 1997, with the exception of Greece, which takes the data from 2000 because its incorporation was postponed. Source: datosmacro.
It was at the European summit held in Santa Maria da Feira, Portugal, on June 19 and 20, when European leaders approved Greece’s accession to the monetary union, after the convergence report prepared on the Hellenic country was favorable. At the same time, it must maintain stability and avoid problems with inflation (EFE, 2000). However, the agency says that ‘experts have warned of the danger that the decision will be taken too soon due to the current weakness of the single European currency’. For its part, the report (European Parliament, 2000) congratulates Greece for its economic and fiscal policies and confirms that Greece will start using the Euro in 2001, even if the coins and notes did not start to circulate, as in the rest of countries, at the beginning of the year 2002.
The immediate effects of the incorporation to the Euro did not wait. After its entry, the Greek gross domestic product underwent a remarkable expansion, superior to 4% annual during its first years in the monetary union, happening, in addition, having a GDP per capita of 13,000 Euros in 1999 to more than 17,000 Euros only 5 years (Datosmacro, 2018). For its part, foreign direct investment shot up to multiply by two, from just over 17 billion euros at the beginning of the millennium to reach its zenith in 2007, with a value of 35.5 billion (Bank of Greece, 2008).
However, not everything was going to be good omens. According to BBC News (2001), investors were concerned about the decision of the Union to include the Hellenic republic in the euro, showing serious doubts about its macroeconomic data, especially inflation. It also includes that this decision may lead to weaker economies being admitted to the common currency in future enlargements, without taking into account the convergence criteria as with Greece. These doubts were confirmed in a Eurostat report (2004) which states that the fiscal years of Greece between 2000 and 2004 were underestimated and that the main elements explaining the revision of the Greek deficit between the notifications of March 2004 and September 2004 were recorded below expenses, overestimation of the surplus of social security funds and downward revision of tax revenue estimates’. The same report states that the main reasons for the statistical differences found are due to the increase in military spending and to the fact that capital injections provided by the European Union itself have not been taken into account.
Main components of the revision of Greek data between the figures reported in March 2004 and September 2004.

Source: Eurostat.

Finally, in this report, after a meeting between the Greek authorities and the European authorities, they concluded that the deficit and public debt indicators for the years 1997, 1998 and 1999 were also reported with a lower value than the real figure.
Comparative table of the figures reported and the actual figures of Greek government finances.
Budget deficit (% of GDP) Public Debt (% of GDP)

Notified value Real value Notified value Real value
1997 4 6,6 108,2 114
1998 2,5 4,3 105,8 105,8
1999 1,8 3,4 105,2 105,2
Source: Eurostat.

These differences in figures, different from reality, would worsen at the end of the 2000s, once the outbreak of the economic crisis in most developed countries, with the discovery of parallel accounting that hid the Greek government to the European institutions.

The beginning of a serious crisis for Greece began in 2009 and has been extended to the present. This crisis is not only economic, but also social and political. The main cause appeared after the early elections of 2009 called by Prime Minister Kostas Karamanlis dissolve the parliament to elect a new government able to take the country out of the crisis, in addition to losing popularity after a series of riots in Athens and the bad management of forest fires that same summer (AFP, 2009). After these elections, won by the socialist party (PASOK) by absolute majority, it was discovered that his predecessor in the government was falsifying the national accounts. The conservative New Democracy party said that the expected deficit was 3.7% for that year, however, the new government reviewed these data and showed that the real deficit figure was 12.7%, four times more than expected . Like this figure, the debt also did not reflect its real level and stood at 113.4% of GDP (RTVE, 2018). The investment bank Goldman Sachs helped the state to hide billions of euros in the form of financial transactions (swaps) in Dollars and Yen, in order to hide the size of the debt and facilitate more loans (Jackson, 2015) . Story et al (2010) state that ‘Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics’.
A report of the European Commission (2010) denounces the systematic irregularities of these accounts, in addition to proposing a more exhaustive revision of the accounts, after verifying in fact that there are accounting errors in the Greek accounts. After knowing the imbalances, the government of Giorgos Papandreou announced that they would approve measures to cut public spending in order to lower the level of debt. The first package of adjustments would arrive in March 2010 and, according to BBC World (2010) ‘the measures include an increase in taxes applied to sales and luxury items, an increase in fuel taxes, a cut of 30% in the vacation bonds that are paid to public employees, as well as the freezing of pensions. For its part, the rating agency Standard ; Poor’s lowered the rating of Greek bonds, going from rating with BBB- to BB +, qualifying them as ‘junk bonds’ (El País, 2010). The newspaper also affirms that the reduction of the note ‘closes all the doors to be able to go to the markets to finance itself and leaves it at the risk of its euro partners activating the credits of up to 45,000 million euros foreseen in the rescue plan to avoid bankruptcy. ‘Finally, the newspaper notes that the return on these bonds is 18% and the risk premium is around 1,500 basis points. The performance of the bonds made it impossible for Greece to finance itself in international markets and had to ask for help from the European institutions.
Thus, in May 2010, the European Commission, the European Central Bank and the International Monetary Fund agreed to help Greece with a disbursement of 110 billion euros, in order to stabilize the Greek economy, make it more competitive and recover the confidence in the markets (IMF, 2010). In this report, it is added that two thirds of the financial assistance – some 80 billion – would come from the countries of the European Union and the remaining third would be provided by the IMF. In addition, the latter will make quarterly inspections in order to follow the evolution of the program of measures. However, and in exchange for the aid, the Greek state will have to make a series of very strict fiscal reforms:
? Fiscal consolidation policy, aimed at reducing the deficit level below 3%.
? Policy of containment of public spending, designed to save approximately 5.25% of GDP. For this, both salaries and retirement pensions were frozen and the extra pay of the officials was eliminated.
? An increase in public revenues, increasing taxes on VAT, alcohol and tobacco.
? An improvement in tax management, consisting in strengthening tax collection among taxpayers, as well as budgetary controls.
? Creation of a financial stability fund, to provide capital to banks.
? Restrictions to social assistance programs, keeping only the most vulnerable people.
? Reform of the pension system, reducing early retirement.
? Structural reforms to modernize public institutions, as well as privatization of companies controlled by the state.
? A drastic reduction in military spending.
These measures provoked a strong rejection in Greek society, which was against spending cuts and the freezing of wages. Throughout the first semester of 2010, the country became paralyzed seven times as a result of several general strikes (El País, 2010) motivated by the government’s harsh adjustment plans. In one of them 100,000 people gathered around the Greek parliament (El País, 2010). Despite the huge amount of money injected into the Greek economy, the results were not as expected. The GDP fell by 5.5% with respect to the previous year and the unemployment rate reached 14.8% (ELSTAT, 2018) while the deficit and public debt data did not reach the required levels (EUROSTAT, 2018) . This economic crisis is compounded by a political crisis, since at the end of 2011 Prime Minister Papandreou presents his resignation and forms a concentration government headed by Lukas Pamadimos, which would have the objective of negotiating the conditions for a second rescue, in addition to present the budgets for the following year (Mantas, 2011). In March 2012, the government managed to implement another adjustment plan, which would mean saving 3.3 billion euros by cutting the minimum wage by 22% and dismissing 15,000 officials. These measures were approved in a climate of tension in the streets of Athens, where there were riots and altercations between the demonstrators and the police that left a balance of about 50 injured (Mars, 2012).The conditions for the second rescue were stricter, and the accounts will be overseen by the members of the European Union, who will send a permanent representation and control all state spending, while the latter will be obliged to comply with a program of economic adjustments based on following cutting public spending. It was also agreed to apply a mechanism whereby the interest on the debt and the principal will be paid first, and then the state’s expenses.
Not all were disadvantages for the Greek government and economy, as the creditors accepted a 53.5% debt write-off and the European Central Bank will cede the benefits of the Greek bonds to the central banks of the eurozone countries, thus reducing Greek interest and debt (Castiella, 2012)
The second rescue was formalized weeks later, and the eurozone countries and the IMF contributed the amounts that had not yet been received from the first financial aid plus an additional 130 billion euros until 2014. However, this amount was not contributed by the member states bilaterally as the previous bailout, but the contributions came from the European Financial Stability Facility (EFSF), a fund created for situations of lack of liquidity. This mechanism would contribute in fractioned payments, a total of 144.7 billion, while the remaining 19.8 billion would be contributed by the IMF (European Commission, 2018). In addition, the commission adds that ‘Euro area countries agreed to:
? Lower the interest rate charged to Greece on the loans provided in the context of the Greek loan facility by 100 basis points.
? Lower the guarantee fee costs paid by Greece on the EFSF loans by 10 basic points.
? Extend the maturities of the bilateral and EFSF loans by 15 years and defer Greece’s interest payments on EFSF loans by 10 years.
? A commitment by EU countries to pass on to Greece’s segregated account, an amount equivalent to the income on the securities markets programme (SMP) portfolio accruing to their national central bank as from budget year 2013’.
This financial aid program ‘foresees a process of adjustment in public finances and the Greek economy so that by 2020 its public debt reaches a sustainable level of 120.5% of GDP, compared to the current 160%’ (Gallego, 2012 ). The author also adds that Greece will be able to face debts that had a very close maturity, worth 15 billion euros.
Disbursements under the second bailout for Greece (in billion Euros)
Disbursement Date EFSF IMF Total
1 March-June 2012 74 1.6 75.6
2.1 December 2012 34.3 – 34.3
2.2 January 2013 7.2 – 7.2
2.3 January 2013 2 3.24 5.24
2.4 February 2013 2.8 – 2.8
2.5 May 2013 2.8 – 2.8
3.1 May 2013 4.2 1.74 5.94
3.2 June 2013 3.3 – 3.3
4.1 July 2013 2.5 1.8 4.3
4.2 December 2013 0.5 – 0.5
5.1 April 2014 6.3 3.6 9.9
5.2 July 2014 1 – 1
5.3 August 2014 1 – 1
Source: European Commission
The second financial rescue to Greece coincided with a period of difficult political situation, since parliamentary elections were held in May of that same year. In the face of economic uncertainty, Greek citizens went to the polls, which only raised doubts about the future of the country. The final result was a very divided parliament, where up to seven political parties obtained parliamentary representation. A news story by Sánchez-Vallejo (2012) shows how the two main political forces that had governed the country in recent decades -and that supported austerity and rescues policies- had only won 32% of the votes and 149 seats ( 48 of PASOK and 108 of ND), which made it impossible to form a government coalition. Of these elections also highlights the rise of extremist parties contrary to the European Union and the conditions demanded by Brussels. None of these parties managed to gather 151 seats to form a government due to their ideological differences, which led to the repetition of the elections for the following month.
Composition of the Hellenic Parliament after the May 2012 elections.

In Greece, a total of 250 deputies are elected by universal suffrage, while the remaining 50 are automatically awarded to the winning political force. Absolute majority: 151 seats. The impossibility of forming coalition governments meant that Greek citizens had to go to the polls again. Source: El País.
Just five weeks later a second election was held that marked not only the future of Greece, but also of the European Union and the Euro (Martinez, 2012). In these elections the conservative New Democracy party won again, this time with a greater number of votes and seats, reaching 129. On this occasion, ND and PASOK, both pro-European parties, get 163 seats, a number greater than the absolute majority, which is a triumph for the pro-Europeans who oppose to the harsh austerity policies (20minutos, 2012). After the elections, the conservative Andonis Samaras could be appointed prime minister with the support of his party, PASOK and the deputies of DIMAR.

Composition of the Hellenic Parliament after the repetition of elections.

The comfortable majority of the party’s political formations to remain in the euro and accept the terms of the rescue (ND, PASOK and DIMAR) allowed them to form a relatively stable government. Source: 20minutos.
With the formation of government the economic situation progressed positively. A report by the European Commission (2014) shows that the Greek economy showed a slight improvement, reducing the economic contraction – which went from 6% to 2.3% – whose data was better than expected, and it was expected that the economic recovery arrived in 2014, with a growth of 0.6%, in addition to a growth forecast of 2.9% and 3.7% for the next two years. On the other hand, the indexes of general purchases and of confidence in the markets were recovering due to constant improvements in production and services. In addition, the Greek trade balance managed to recover and, for the first time since the 1940s, more products were exported than were imported.
The same report also mentions that the GDP deflator stood at -2.1% during fiscal year 2013, which can help increase the purchasing power of citizens, and is expected to remain negative at least until 2014. On the other hand, employment grew again and is expected to continue in this trend during 2014 and 2015, with increases of 0.6% and 2.6%, respectively.
In addition, government finances could be alleviated, since at the end of 2013 the state accounts registered a primary surplus of 1.2 billion Euros, equivalent to 0.7% of Greek GDP. It is a very significant figure, taking into account that in the previous year there was a deficit of 2.4%. This figure is mainly due to a decrease in imports and the increase of tourism in the country. The report also states that “The current account has also significantly improved to reduced government interest payments and transfers of national central bank profits on Greek bond holdings. Export growth, beyond tourism, is forecast to play a larger role in 2014 ‘.
However, a spring report the following year (European Commission, 2015) showed that the improvement of the Greek economy was only a mirage. The Commission adds that ‘The positive momentum has, however, been hurt by uncertainty since the announcement of the snap elections in December. The current lack of clarity on the policy stance of the government vis-à-vis the country’s policy commitments in the context of the EU / IMF support arrangements worsens uncertainty further. Greece’s economic sentiment indicator (ESI) deteriorated in March due to falling confidence in all business sectors, although consumer confidence remained at relatively high levels. Greece’s purchasing managers index (PMI), recorded to further deterioration in business conditions for manufacturing in March, suggesting that the sector is still in depression, with new export orders and output falling ‘.
Furthermore, as a result of this uncertainty, the state’s revenues decreased at the end of 2014 and the beginning of 2015, which caused the deficit level to fall back to negative figures, at 3.5% of GDP, substantially worse than Expected, but with better figures than in previous years. On the other hand, the debt, according to forecasts of the European body, is expected to reach its peak throughout 2015, before falling again the following year. This is due to the more favorable interest rates and payment terms offered by the European Financial Stability Facility, which will keep interest expenses low. To this is added that ELSTAR, the statistical agency of Greece, confirms that during the first quarter of 2015 its economy suffered a recession of 0.2% (Reuters, 2015).
As previously stated, in December 2014 elections were held for the following month after a political crisis, in which there was no agreement to appoint head of state (Sánchez-Vallejo, 2014). The instability of the government caused the Athens Stock Exchange to plummet by 11% and the risk premium to reach 890 basis points, mainly due to the skepticism of the markets after polls were known the rise of SYRIZA, an anti-austerity party that advocates reject all agreements signed with the Troika and negotiate a cancellation of the debt (Free Market, 2014). That is why the IMF decided to suspend economic aid to Greece until a new government is formed, since, according to its spokesman, “it does not face immediate financing needs” (EFE, 2014).
In the elections, held at the end of January 2015, it meant a change of direction in the country’s politics. The political formations defending anti-austerity policies imposed themselves firmly against those who advocated following the guidelines of the troika. The winning party, SYRIZA obtained 36.3% of the votes and 149 seats, remaining only two of the absolute majority. They were followed by New Democracy with 76 deputies and the right-wingers of Golden Dawn with 18. In this sense, the Greek citizens opted for the speech of dignity proposed by the winner of the elections, Alexis Tsipras (Sánchez-Vallejo, 2015).
The victory of a party opposed to accept the conditions of the rescues made the stock markets and markets of Europe wobble. The Athens Stock Exchange fell by 9% after its opening, and other European stock exchanges such as Frankfurt, Paris or Milan would fall by 0.5, 0.4 and 1%, respectively. On the other hand, interest rates on Greek debt would rise to around 9%, and the exchange rate of the euro against the dollar would fall to 1.11 dollars per euro (Cuesta, 2015).

Composition of the Greek parliament after the 2015 elections.

Source: El País.
After the elections and formation of a government led by Tsipras, the Eurogroup granted an ‘extension’ of the 4 month bailout for Greece in exchange for continuing the reforms aimed at correcting the deficit (Suanzes, 2015), while trying to renegotiate the terms of the payment of the debt. However, Brussels does not agree to continue extending this rescue (Pérez, 2015), to which Greece responds by unilaterally breaking the negotiations (European Council, 2015) and calling a referendum so that the Greek people can decide whether to accept the conditions imposed by the European Union (Sánchez-Vallejo, 2015).
Days after the referendum call, the government establishes a banking ‘corralito’, consisting of keeping the financial institutions closed and restricting the withdrawal of cash from banks, in order to avoid situations of banking panic and massive withdrawal of deposits. While this situation of capital control lasted, Greek citizens could only make a maximum of 60 euros a day (Público, 2015). The Athens stock exchange also remained closed at the same time as bank branches (Europa Press, 2015).
The results of the referendum only tensed the situation between Greece and Europe. According to the Ministry of the Interior of Greece (2015), 61.31% of the country’s electorate voted against the policies imposed from Brussels.
After the victory in the referendum, the Greek government requested a third rescue, worth 85 billion euros and three years (Dominguez, 2015), but with stricter conditions than those proposed before the consultation ( Europa Press, 2015).
Along with the financial rescue, both parties signed a Memorandum of Understanding (European Commission, 2015), focused on 4 fundamental pillars:
? Sustainable taxation With the objective of reducing the primary deficit and placing it at 0.25% by the end of the year. To this end, the government had to reduce tax breaks, cut pensions and avoid early retirement, in addition to trying to save the equivalent of 0.5% of annual GDP.
? Financial stability. For this, funds were reserved that would cover the capitalization of the banks, in addition to accepting the supervision, on the part of the troika, of its financial system.
? Economic growth. For this, the government had to make changes in its labor legislation and align them with community legislation. In addition, consumer markets will also be liberalized, to allow consumers to easily switch suppliers.
? Reform of public administrations, cutting travel expenses and bonuses to officials. On the other hand, the government will have the duty to control the statistics of the state, in order to maintain its credibility.
Currently, Greece has managed to stabilize its economy and its gross domestic product has managed to be in positive figures, around 1.5% in 2017, being the first time since the crisis that the country is in economic expansion. In addition, the country is expected to continue growing at around 4.2% in 2018 and 2.6% in 2019 (OECD, 2018). For its part, the government managed to reduce the deficit below 3%. After the close of 2016, the Greek accounts showed a surplus of 0.7% and that is why the countries of the union closed the procedure against their excessive deficit, opened since 2009, when the country reached a peak deficit of 15% (Europa Press, 2017). Another data that has improved with the passage of time is the unemployment rate. At the end of 2017, the unemployment rate reached 20.7% (Europa Press, 2018), marking a very significant decrease, since several years earlier this figure reached a record 27.6% (Europa Press, 2013) . The figure of the debt is not, however, very hopeful. Despite having stabilized, the level of debt remains very high, standing at around 180% of GDP, something that institutions such as the IMF consider unsustainable and which is opposed by Germany (E.B., 2018). However, Greece has managed to finance its debt at a lower interest rate. The risk premium has been around 450 basis points at the end of 2017, which has caused the 10-year interest rate of the Greek bond to stand at 4.8%, similar to the levels recorded in 2009 , before the outbreak of the crisis (Expansión, 2017).
To conclude, the forecasts for the future for Greece are encouraging, since it is expected a considerable improvement in its macroeconomic magnitudes, alleviating the delicate situation that the country is going through and solving the problems, at least in the short and medium term.

Forecast of the economy of Greece for the triennium 2018-2020

Source: Trading Economics.

One of the main results obtained in this research is the cause of the high level of debt and deficit of the Greek state. These high figures are due to the large amount of spending that the government had year after year. Some examples are presented by Orozco (2015), who states that, for example, there are some 45 gardeners hired to take care of 4 small green areas, whose payroll was paid by the state. In addition, the author herself affirms that the set of all public administrations was composed of 750,000 officials, almost 20% of the active population of the country. Castiella (2015) adds that another of the big spending holes is the pension system in Greece, since in some jobs workers could retire at a very early age, being in many cases around 50 years. This meant that the active population decreased and they had to support the payment of pensions to a high number of retirees. On the other hand, the state owned numerous assets, either real estate or companies, which it had to keep afloat. A large part of the Hellenic infrastructures have been privatized in order to obtain liquidity for the state.
On the other hand, it is clear that Greece should not have adopted the Euro so hastily. This is mainly due to the fact that, despite having joined the monetary union, it did not meet the requirements established for that purpose. Its revenue weakened the Stability Pact and could make weaker economies adopt the single currency and the confidence and credibility of the euro was put into question, and that currency would have suffered a considerable devaluation. That is why both the countries that are within the euro and those that are candidates to use it continue scrupulously to comply with the agreement in Maastricht, to ensure that the euro has long-term stability and is a strong currency in international markets. For this reason, the accession to the euro had to be postponed, at least, until the economy and finances of Greece were consolidated and there is no risk of volatility in the markets.
With respect to the crisis that ravaged the country, it was evident the lack of control on the part of the European institutions before the concealment of debt made by the Greek government, as well as the lack of control of the state’s finances and resources. European aid, estimated at more than 300 billion euros, has served to alleviate the situation of a country that was on the verge of bankruptcy, but its macroeconomic data are not entirely good. While it is true that the deficit level has been controlled and positive primary deficit figures have already been recorded, debt levels have not dropped significantly and remain at very high levels, which can cause long-term problems, and It is likely that the level of debt is a chronic problem in the Greek economy. For their part, the European institutions will have to increase the evaluations to the partner countries to avoid the repetition of episodes like this one.
One of the possible solutions that could alleviate the situation in the country would be to apply a debt write-off, in order to clean up the Greek accounts and prevent the problem from prolonging over time. However, this solution is not easy, since they were applied during the second bailout and the creditors refuse to continue applying more debt reductions. Another possible solution would be to invest in the Hellenic country, in order to increase their exports and generate income within the country, which would have a positive impact on the coffers of the state and the welfare of the economy.
Finally, it is worth noting the impact that the political situation has had on the economic aspects. In the worst years of the crisis there was a polarization of parliamentary life and the successive elections held during this time resulted in the appearance of political formations contrary to the austerity policies and the payment of the debt, which today are the majority in the congress, snatching power from the traditional parties, supporters of abiding by the conditions imposed by the European Union. The triumph of the former created much uncertainty, since there were serious doubts about whether the current rulers would continue to pay the debt or if otherwise they refused. The relative calmness and prudence with which the anti-austerity parties arrived at the government calmed the situation a bit, and although the third financial rescue was requested by them, they have acted correctly and it is expected that in the future the country will return to the stability that he enjoyed in the years before the crisis.

The main conclusion that can be drawn from this work is that Greece did not have to enter the euro so early, since it was far from meeting the conditions necessary for its incorporation. In addition, its economy was very small and not very diversified with respect to the rest of the countries that the European community had at that time, and it was focused mainly on tourism and agriculture, as well as having a lower standard of living. Despite the economic and fiscal measures adopted during the 1990s to control inflation and deficit and public debt levels, these were insufficient and it would have been advisable to postpone this incorporation for the following years. Its incorporation into the monetary union, very hasty, had more political than economic, since at that time the European Union sought that the greater economic integration of Greece in the old continent served as a springboard for future additions to the European bloc, especially the Eastern European countries and the Balkans. In addition, Greece at the time was ‘isolated’ from the rest of the European bloc, because it did not have Union member countries as neighbors – until the incorporation of Bulgaria in 2007- which made the only way to benefit from free trade be it through the sea or the air. This, added to the tense relations that it has with all the states with which it shares a border (ethnic problems, dispute over the Aegean Islands, conflict in Cyprus, disputes over the name of Macedonia, etc.), made Greece unable to take advantage of its status as a member state of the Union, and could not consolidate a firm leadership among the states located in the Balkans.
Another of the main conclusions is based on the outbreak of the crisis and its subsequent management. While it is true that Greece is largely responsible for hiding its real numbers and for having borrowed well beyond its means, this situation went unnoticed by institutions such as the ECB or the IMF, in addition to the European Commission. Since the inclusion of a state in the European Union, its macroeconomic accounts and statistics are constantly monitored by the supranational institutions created for this purpose, to assess whether the conditions imposed for its accession are still being met. The European institutions were questioned after discovering the falsification of the Greek accounts, since they had been manipulated for several years and did not have any suspicions about the matter. That is why these institutions must carry out more exhaustive controls on macroeconomic and financial data. All this to avoid more cases like Greece, which can weak the credibility of a common project such as the European Union and the Euro.
On the other hand, financial bailouts have only increased the dependence of Greece with its creditors, since the countries of the eurozone limited themselves to contributing capital in order to pay their debt. That is, the debt was paid while creating more debt. The levels of this have reached unsustainable highs and the most convenient thing to alleviate the situation that Greece is suffering would be to apply a debt reduction. However, Greece’s largest creditor is Germany, and its government refuses to accept such an operation.
Regardless of the above, the three financial bailouts that Greece has received have managed to alleviate its financial situation. At least, in the short and medium term. The economic recession has managed to slow down and in the last year the Greek economy is growing for the first time since the outbreak of the crisis. In addition, the levels of deficit and debt have been stabilized, and Greek bonds have interests similar to the years before the rescue. The situation seems to return to normal, but the country should continue to comply with the indications established from Brussels, to try to reconcile economic growth with the payment of the debt. The latter is what worries the most, since the amount of debt is higher than what Greece can produce in a year, and it is more than likely that future generations will continue to bear this burden as long as the creditors do not accept a debt forgiveness. Consequently, the Greek people will have to continue to live in the coming years in a situation of austerity and control of the expenses.

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