“Back from the Brink: How to End Greece’s Seemingly Interminable Crisis”
Modernization and Europe 20 Years On Spyros Economides, editor, Hellenic Observatory at the London School of Economics (LSE), 2016.
Before the global financial crisis erupted in 2007, countries in the European periphery (PIIGS: Portugal, Ireland, Italy, Greece and Spain) were enjoy- ing stable growth, relatively low fiscal deficits, and near-zero credit spreads. The financial crisis ended debt-financed consumer booms and burst hous- ing bubbles resulting from the sharp decline in interest rates in the run-up to Economic and Monetary Union (EMU) in 1999. The Greek rollercoaster is especially noticeable as the country suffered a sharp reversal of ‘the good times’, which were based on external borrowing and real wage increases far above productivity growth (Figure 1). In the run-up to the crisis, Greece’s real effective exchange rate appreciated strongly, contributing to a growing cur- rent account deficit that reached 15% of GDP in 2008 (Figure 2). During the ‘golden years’ 1999-2007, Greece’s per capita income rose by a cumulative total of 33.6%, much faster than the rest of the Euro area periphery bar Ireland, although productivity growth lagged behind (Figure 3).