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Published by: bruegel_3ev on Feb 19, 2014
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Committee study on the
The Troika and financial assistance in the euro area: successes and failures
Study on the request of the Economic and Monetary Affairs Committee
February 2014 ECON EN
2 PE 497.764
The Troika and financial assistance in the euro area: successes and failures
February 2014
This study provides a systematic evaluation of financial assistance for Greece, Ireland, Portugal and Cyprus. All four programmes, and in particular the Greek one, are very large financially compared to previous international programmes because macroeconomic imbalances and the loss of price competitiveness that accumulated prior to the programmes were exceptional. Yet programmes were based on far too optimistic assumptions about adjustment and recovery in Greece and Portugal. In all four countries, unemployment increased much more significantly than expected. Although fiscal targets were broadly respected, debt-to-GDP ratios ballooned in excess of expectations due to sharp GDP contraction. The GDP deterioration was due to four factors: larger-than-expected fiscal multipliers, a poorer external environment, including an open discussion about euro area  break-up, an underestimation of the initial challenge and the weakness of administrative systems and of political ownership. The focus of surveillance of conditionality evolved from fiscal consolidation to growth-enhancing structural measures. The Greek programme is the least successful one. Ireland successfully ended the programme in December 2013, but  problems remain in the banking system. Exit from the Portuguese programme in May 2014 appears feasible but it should be accompanied by a precautionary credit line. It is too early to make pronouncements on the Cypriot programme, which only started in May 2013, but it can safely be said that there have been major collective failures of both national and EU institutions in the run-up of the programme.
PE 497.764 3 This policy note was requested by the European Parliament's Economic and Monetary Affairs Committee.
André Sapir, Senior Fellow, Bruegel Guntram B. Wolff, Director, Bruegel Carlos de Sousa, Affiliate Fellow, Bruegel Alessio Terzi, Research Assistant, Bruegel
Alice Zoppè Stanislas de Finance Economic Governance Support Unit Directorate for Economic and Scientific Policies Directorate-General for the Internal Policies of the Union European Parliament B-1047 Brussels
 Original: EN
Economic Governance Support Unit provides in-house and external expertise to support EP committees and other  parliamentary bodies in playing an effective role within the European Union framework for coordination and surveillance of economic and fiscal policies. E-mail: egov@ep.europa.eu
 This document is also available on Economic and Monetary Affairs Committee homepage, under section European Semester and Economic Dialogue at: www.europarl.europa.eu/ECON Manuscript completed in February 2014. © European Union, 2014
The opinions expressed in this document are the sole responsibility of the authors and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the publisher is given prior notice and sent a copy.

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