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Understanding the Greek Crisis

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  • Michael Mitsopoulos
  • Theodore Pelagidis
Abstract
This paper focuses on the distortions that the Greek public debt has imposed on the Greek banking system, and suggests how these can be unwound. The low level of competitiveness of the Greek economy, which is well below the competitiveness of the developed countries, poses a great challenge for the Greek banks. At the same time it puts at risk Greece’s economy ability to service both the private and public debt, which, as an aggregate, are comparable to the indebtedness of the developed nations. An adjustment of economic activity to match the current low level of competitiveness will increase the risks faced by the financial system and make an orderly servicing of the debt of the economy very challenging. It follows that only one reasonable policy option remains: to increase the competitiveness of the economy through an aggressive reform agenda, so that it will match its level of indebtedness, and through the resulting growth shift the excessive debt of the public sector to the private sector.

Suggested Citation

  • Michael Mitsopoulos & Theodore Pelagidis, 2011. "Understanding the Greek Crisis," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 12(1), pages 177-192, January.
    • Handle: RePEc:wej:wldecn:461
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    File URL: https://www.worldeconomics.com/Journal/Papers/Article.details?ID=461
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