Greece and the Western Financial Crisis

Abstract

Greece and the other crisis nations of the Western financial crisis are, to a large extent, victims of a dysfunctional international monetary system that has caused multiple financial crises since the collapse of the Bretton Woods system in 1973. In the Eurozone, the government bond market allowed the government of Greece to borrow at favorable rates without taking into account the possibility of default until it was too late. The capital from the surplus countries, Germany and the Netherlands being the most prominent, created housing price booms and housing construction in Ireland and Spain, while the public sector borrowed in Portugal and Greece. The problem of the recipient countries was magnified by imperfect institutions, such as inefficient financial supervision or an inefficient or corrupt political establishment. Thus, financial integration magnified local problems and made them take on an international dimension. The burden of adjustment within the Eurozone has been left largely with the debtor countries. The surplus countries have not reduced their current account surpluses. Though macroeconomic and public sector imbalances have been reduced in Greece, the country continues to lose its young through emigration and a vibrant export sector has not emerged.