Wednesday, July 4, 2012

Greek Crisis in Perspective: Origins, Effects and Ways-Out

by Nicos Christodoulakis

The Statesman's Year Book

July 2012

In the aftermath of the global financial crisis of 2008, several European countries were engulfed in a spiral of rising public deficits and explosive borrowing costs that eventually drove them out of markets and into bail-out agreements with the International Monetary Fund (IMF), the European Union (EU) and the European Central Bank (ECB). Greece was by far the most perilous case, with a double-digit fiscal deficit, an accelerating public debt which in GDP terms was twice the Eurozone average, and an external deficit near US$5,000 per capita in 2008, one of the largest worldwide.

In the wake of an EU bailout and two elections the situation remains critical. Unemployment is rocketing, social unrest undermines the implementation of reforms and the fiscal front is not yet under control, despite extensive cuts in wages, salaries and pensions. The possibility of Greece exiting the Eurozone is widely anticipated.

Greece joined the European Union in 1980. Membership inspired confidence in political and institutional stability but fed uncertainties over the economy. After a long period of growth, Greece faced recession not only as a consequence of worldwide stagflation, but also because on its way to integration with the common market it had to dismantle its system of subsidies and tariffs. Soon after accession, many firms went out of business and unemployment rose for the first time in decades.

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