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The road to Ithaca: the Gold Standard, the Euro and the origins of the Greek sovereign debt crisis

Author

Listed:
  • Harris Dellas

    (University of Bern)

  • Goerge Tavlas

    (Bank of Greece)

Abstract
The origins of the Greek-sovereign debt crisis were the country’s large fiscal and external imbalances. The key factor that abetted those imbalances was the absence of a short-to-medium term adjustment mechanism -- due to perceptions of sovereign bailouts -- in the euro-area that would have reduced members’ external imbalances. This situation contrasts sharply with the adjustment mechanism under the classical gold standard. Under the gold standard, countries with external deficits would experience losses of gold reserves, higher interest rates, lower money and credit growth, and reductions in wages and prices, which helped restore trade competitiveness. We draw two main conclusions. First, the durability of a monetary union is crucially dependent on the existence of a well-functioning adjustment mechanism. Second, adherence to a hard peg is no panacea and cannot be sustained without the support of credible fiscal institutions.

Suggested Citation

  • Harris Dellas & Goerge Tavlas, 2012. "The road to Ithaca: the Gold Standard, the Euro and the origins of the Greek sovereign debt crisis," Working Papers 149, Bank of Greece.
    • Handle: RePEc:bog:wpaper:149
    as

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    References listed on IDEAS

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    Cited by:

    1. Bordo, Michael & James, Harold, 2014. "The European Crisis in the Context of the History of Previous Financial Crises," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 275-284.
    2. Konstantakis, Konstantinos N. & Michaelides, Panayotis G. & Vouldis, Angelos T., 2016. "Non performing loans (NPLs) in a crisis economy: Long-run equilibrium analysis with a real time VEC model for Greece (2001–2015)," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 149-161.
    3. Lothian, James R., 2014. "Monetary policy and the twin crises," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 197-210.
    4. Papavassiliou, Vassilios G., 2014. "Cross-asset contagion in times of stress," Journal of Economics and Business, Elsevier, vol. 76(C), pages 133-139.
    5. Honkapohja, Seppo, 2014. "The Euro Area Crisis: A View from the North," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 260-271.
    6. Mirdala, Rajmund & Ruščáková, Anna, 2015. "On Origins and Implications of the Sovereign Debt Crisis in the Euro Area," MPRA Paper 68859, University Library of Munich, Germany.
    7. Vouldis, Angelos, 2015. "Credit market disequilibrium in Greece (2003-2011) - a Bayesian approach," Working Paper Series 1805, European Central Bank.
    8. Michael G. Arghyrou, 2015. "The Greek Crisis and Financial Assistance Programmes: An Evaluation," CESifo Working Paper Series 5591, CESifo.
    9. Pietro Alessandrini & Michele Fratianni & Andrew Hughes Hallett & Andrea Presbitero, 2014. "External Imbalances and Fiscal Fragility in the Euro Area," Open Economies Review, Springer, vol. 25(1), pages 3-34, February.
    10. Bratis, Theodoros & Laopodis, Nikiforos T. & Kouretas, Georgios P., 2020. "Systemic risk and financial stability dynamics during the Eurozone debt crisis," Journal of Financial Stability, Elsevier, vol. 47(C).

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    More about this item

    Keywords

    international financial systems; current account adjustment; gold standard; euro area crisis; Greek crisis;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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