Abstract
This paper presents and critically discusses the origins and causes of the Greek fiscal crisis and its implications for the euro currency as well as the SEE economies. In the aftermath of the 2007-2009 financial crisis the enormous increase in sovereign debt has emerged as an important negative outcome, since public debt was dramatically increased in an effort by the US and the European governments to reduce the accumulated growth of private debt in the years preceding the recent financial turmoil. Although Greece is the country member of the eurozone that has been in the middle of this ongoing debt crisis, since November 2009 when it was made clear that its budget deficit and mainly its public debt were not sustainable, Greece?s fiscal crisis is not directly linked to the 2007 US subprime mortgage loan market crisis. As a result of this negative downturn the Greek government happily accepted a rescue plan of 110 billion euros designed and financed by the European Union and the IMF. A lengthy austerity programme and a fiscal consolidation plan have been put forward and are to be implemented in the next three years.
Highlights
The overall picture from these accounts is that private debt increased more than public over the whole period. This is exactly what we have observed since the peak of the crisis in October 2008 with governments being forced to bail out problematic banks, taking over a major share of the debts of failing financial institutions. They followed expansionary fiscal and monetary policies along with an array of complementary stimulus programmes in order to increase aggregate demand and to make sure that their economies will not fall in deep recession
A number of factors have contributed to the fiscal crisis that Greece has been experiencing since October 2009
Greece has been recently downgraded to BBB- because of the high budget deficit and the perceived by the markets, unsustainable level of public debt
Summary
A number of factors have contributed to the fiscal crisis that Greece has been experiencing since October 2009. Some of these factors are endogenous; have to do with the structure of the Greek economy itself, the prolonged macroeconomic imbalances that the Greek economy faces and the credibility problem of macroeconomic policy. Other factors are exogenous and have to do with the implications of the recent financial turmoil and the timing of the response of Europe to the Greek fiscal crisis. We will briefly review first the internal causes of the deteriorating fiscal stance of the Greek economy and we will discuss external factors that might have contributed to the Greek fiscal crisis
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