The Greek debt crisis: likely causes, mechanics and outcomes

Arghyrou, M.G. and Tsoukalas, J.D. (2011) The Greek debt crisis: likely causes, mechanics and outcomes. World Economy, 34(2), pp. 173-191. (doi: 10.1111/j.1467-9701.2011.01328.x)

Abstract

We use insights from the literature on currency crises to offer an analytical treatment of the crisis in the market for Greek government bonds. We argue that the crisis itself and its escalating nature are very likely to be the result of: (i) steady deterioration of Greek macroeconomic fundamentals over 2001–09 to levels inconsistent with long-term EMU participation; and (ii) a double shift in markets’ expectations, from a regime of credible commitment to future EMU participation under an implicit EMU/German guarantee of Greek fiscal liabilities, to a regime of non-credible EMU commitment without fiscal guarantees, respectively occurring in November 2009 and February/March 2010. We argue that the risk of contagion to other periphery EMU countries is significant; and that without extensive structural reforms, the sustainability of the EMU is in question.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Tsoukalas, Professor John
• Authors: Arghyrou, M.G., and Tsoukalas, J.D.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: World Economy
• ISSN: 0378-5920
• ISSN (Online): 1467-9701
• Published Online: 20 February 2011