A Reputation Risk Perspective on the European Economic Crisis

Abstract

The current economic crises in Europe, and especially the case of Greece, Spain, and Italy has brought forward the complex interaction among States and Markets. At first instance, the European crises seemed to be originated in, and dominated by the Markets’ financially-motivated preferences, especially in the case of Greece, Spain and Italy. However, the balance in the interplay is gradually being restored due to the unrehearsed yet coordinated and still mighty, at the European Union, State-based Political decisions to overcome the crisis, apparently in favor of a political union throughout the EU.

In this paper we are considering a reputation risk framework as a descriptive device for interpreting this interaction, the reasons that lead to it, and consequently the pitfalls that should be avoided in the future. In particular, we consider the timeline of events leading to the economic crisis, commencing form the starting subprime events at the USA, continuing with the Greek economic crisis, and consequently with other European countries, such as Italy or Spain, until we reach the present status as dictated by the Greek Private Sector Involvement (PSI) in restructuring the Greek debt. Subsequently, we present an instantiation of the reputation framework that allows us to use and interpret the State-Market interplay and its dynamics in the context of the crises. We then align the timeline with a suitably adapted reputation risk framework in order to interpret the development of the aforementioned crisis and to anticipate, where possible, its evolution henceforth. Finally, we discuss the main findings and the prospects of this work.