European Financial Crisis

Introduction

The negative effects of economic regression in any particular region area can be addressed effectively through critical analysis of the potential causes of the recession. Particularly interesting, is the recent European financial crisis and the immense impact it had on Greek's economy. To gain better understanding of this globally influential aspect, the research project was divided into several phases. The first phase of the research project entailed the creation of an outline for exploration of diverse economic aspects. This outline included research objectives, potential problematic areas subject to examination, proposed methods of examination, time frame for the work and the expected outcomes of the project. The current research phase entails reviewing literature available about the European financial crisis and its impact on the Greek economy.

Although the European financial crisis, and the consequent effect on Europe's different countries, has been analyzed extensively in scholarly journals and other media, the situation is still unfolding. Information provided by these academic journal and news articles is, therefore, not conclusive. Further, economic projections made at this point would not provide a comprehensive explanation of the situation. Lack of information conclusiveness is because, as most scholars assert, it could take a decade or more to gain a clear picture of the long-term effects of an economic tragedy of such magnitude.

All the same, a general perspective of this significant economic situation and hypothetical long-term effects can be obtained through analysis of different scholars' work. This literature review entails a critical evaluation of four prominent authors' works, as well as, a speech from a senior financial specialist, that is, the Governor of the Bank of Greece. The literature review, therefore, gives an insight into the Greece situation, not only from understanding general economic concepts, but also from an individual that has experienced the country's economic crisis first hand. The review focuses on the political, social and more importantly economic implications of financial crisis on Greece.

According to Lyrintzis (2011, pp.5-10) in the article "Greek politics in the era of economic crisis: reassessing causes and effects" a combination of political, social and economic factors led to the European financial crisis. The author emphasizes the notion that, economic mismanagement, characterized by risky investment behaviour and failure to recognize a looming financial crisis, accentuated the negative impact of the regression. Additionally, Lyrintzis (2011, pp.11-18) asserts that politicization of the economic crisis and lack of a comprehensive policy framework worsened the situation. The author is also quick to indicate that the crisis was bound to explode at some point due to the constant political wrangles between the socialist affiliated party, the Panhellenic Socialist Movement (PASOK), and capitalist advocates. These constant conflicts, according to the author, have considerably weakened Greece's political system, explaining the higher economic impact on the country, in comparison to other European nations.

Lyrintzis (2011, pp.19-22) further analyzes the political atmosphere in Greece on the basis of the significant milestones that the country has attained, as well as, the principal setbacks including the economic crisis. The author recites the history of Greece and the reasons that could possibly have led to the current crisis. Some of the major points that are stressed are the antagonism between the two political parties and how the new party also followed the legacy of their ancestors known as party statism, machine politics or bureaucratic clientelism. The author asserts that the implementation of this government strategy had several implications on Greece, some of which could even have led to the crisis. For instance, the political strategy resorted not only to government polarization, but also awarding of favors to PASOK's affiliates rather than catering for the Greeks' common good. Further, the PASOK government continually extended the Greek state, with the aim of stabilizing patronage politics. This expansion encompassed broadening of all aspects of the public sector, hence incurrence of unnecessary and irrecoverable costs. The expansion, coupled with the fact that there were no reforms to bolster this strategy implied that the nation was prone to economic turbulence.

Lyrintzis (2011, pp.23-32) also notes that before the Euro financial crisis, the reigning political party sought to extend its control into all sector of the public sector. This was done to facilitate the creation of a welfare state, rather than stick to capitalist economic values. The attempt to convert Greece to a socialist state entailed gaining control over all sectors including private enterprises, learning institutions and hospitals, with consideration of the Greek electoral populace rather than economic rationality. This greatly diminished public funds and deprived the nation of financial strength to withstand the crisis. The percentage for political apathy, distrust for political parties and disenchantment with politics also increased Greece's susceptibility to the crisis. The government chose to hide the economical situation of the crisis and later on decided to rely on European Union and International Monetary Fund and negotiated to the terms of EU. On the other side party relied on itself initially and later on decided to investigate on the scandals of the previous government. This investigation only increased the recriminations and allegations of between the involved parties. The policies implemented by the PASOK government undermined the ideological profile and the pre-electoral pledges. This was also one of the events that increased the embarrassment and the insecurity in the people and they questioned the effectiveness of the policies that were formulated.

While Lyrintzis focuses on the political aspects that led to Greece's financial crisis, Meghir, Vayanos & Vettas (2011, pp. 6-8), in their article titled "The economic crisis in Greece: a time of reform and opportunity" make an effort, to evaluate the main reasons behind the Greek crisis. The authors also attempt to explore the nature of the reforms that led to the Greece economic crisis. Additionally, Meghir et al. (2011, pp. 9-13) focus, completely, on a comprehensive reform framework that can be applied in restoring and sustaining the Greek economy in the long run.

According to Meghir et al. (2011, pp. 14-19), the high debt deficit and low competitiveness in the Greek financial market were only reactions to the economic reality of the country. Unlike Lyrintzis, these authors