The Greek Sovereign Debt Crisis: Politics and Economics in the Eurozone
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The Greek sovereign debt crisis has required multiple controversial bailouts, austerity measures that have caused Greek citizens to riot in the streets, and tense political negotiating in the eurozone. However, it is only one part of a larger problem of economic stability and political unity facing the European Union today. This paper seeks to answer three main questions: (1) what were the causes of the Greek sovereign debt crisis, (2) what are the potential policy solutions to the Greek debt problem, and (3) what are the implications of the crisis on the future of the European Union as a whole? Using an institutionalist approach, I analyze both the policies of the EU (in bailing out and financially strengthening Greece) and the institutional defects of the Eurozone (e.g., the ECB has limited power and banking regulations are still national) according to the interests of major European political actors. I evaluate proposed solutions according to which would present the greatest benefits for the fewest costs, in terms economic competitiveness and efficiency and political feasibility. I find that the Greek debt crisis was caused largely by incentives created by the European political environment and secondarily by the institutional structure of the Economic Monetary Union. Thus, to move forward, the European Union must take an active role in restructuring its institutions to promote both economic and political convergence. Correspondingly, it must develop strong political leadership, a polity that identifies with the European project, and a democratic process that provides legitimacy without forgoing its technocratic efficiency.