The Global Debt Minotaur: An Analysis of the Greek Financial Crisis

Since November 2009, Greece has been mired in financial crisis with little indication that it will be solved in the near future. Research and media accounts have faulted Greece for sowing the seeds of its own financial crisis through fiscal mismanagement extending back to the 1980’s. Successive Greek governments have been criticized for racking up an unsustainable amount of foreign debt. Due to the prevalence of such accounts, European officials and Greek politicians have adopted a nationally oriented strategy to resolve the current crisis. This strategy means that the brunt of the reform effort falls on Greece to neoliberalize its economy in an attempt to fix its macroeconomic finances. In effect, Greece is viewed as ‘the sick man of Europe’ that must be ‘cured’ through structural adjustment measures and through liberalization, deregulation, and privatization of the economy. It is commonly thought that if Greece can fix its macroeconomic finances, then the crisis will be solved.

With expected deficit reductions failing to be achieved time and time again and the debt-to-GDP ratio continuing to climb, clearly this reform strategy is failing to provide a real solution to the crisis. This is because the Greek financial crisis is not strictly a national problem. Instead, the situation is a crisis of the eurozone, and any viable solution must take this into consideration.

When Greece adopted the euro in 2001, Greece effectively became a marginalized and indebted country in Western Europe. Greek exports became less competitive when Greece was tied to a hard euro currency, and it became economically rational for Greece to use cheap subsidies offered by the European Union to fund the importation of commodities produced in the core of the eurozone (Germany, France, Netherlands, Luxembourg). In effect, the creation of the eurozone created a massive power imbalance between the strong, Northern European countries and the weak, Southern European countries, Portugal, Spain, and Italy included. Until European officials take this dynamic into consideration and recommend a global reform strategy that takes the structured power imbalance into account, nationally oriented reforms will continue to be implemented in Greece, and the crisis will continue.