The State of the Greek Economy
The financial woes of the Greek economy were the topic of a lecture by Tassos Belessiotis, organized by the Hellenic Studies Program at the MacMillan Center. The talk, which was a follow-up to a panel sponsored by the Program in late April, put Greece’s crisis into the perspective of parallel developments in the European Union.
In his talk, Mr. Belessiotis argued that the public finances in the member states of the European Union and of the Euro area in particular have followed an adverse path in recent years, especially after the eruption of the financial crisis in August 2007. The crisis brought to an end the steady progress in financial market convergence since the introduction of the euro and the emerging Euro area bond market. While, in the early years after the adoption of the common currency in 1999, bond yields had converged remarkably despite a persistent divergence in macroeconomic, structural and financial policies, the 2007 crisis brought this to a brutal end. The bond market began to recognize the idiosyncratic risk associated with each sovereign, and amid an environment of generalized risk aversion, pushed bond rates of those with severe public finance imbalances to unprecedented levels. Greece has been especially vulnerable to change in market sentiment and saw extremely adverse bond market conditions such that she was effectively cut off from international borrowing. Greece’s deteriorating financial situation threatened to engulf through contagion other euro area countries. Euro area leaders agreed with the IMF to help Greece with a 3-year stand-by program of fiscal adjustment and deep structural reforms. The program is being implemented, and indicators suggest that the government is complying with the conditionality requirements. Mr. Belessiotis is the 2010-11 EU Fellow at the Program in European Union Studies. He was an economic adviser at the Bureau of European Policy Advisers, European Commission before he came to Yale.