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Reflections on the Crisis in Greece

Haris Vittas - September 2012

After a brief review of the origins of the crisis and the efforts that have been made to cope with it, the paper assesses the factors that explain the severity of the ongoing recession in Greece. It then examines whether a less costly approach to resolving the crisis is available. It concludes that the current strategy is broadly appropriate but that the costs of adjustment could be materially reduced, and a return to growth accelerated, if the strategy is implemented more vigorously than has been the case so far and if convincing action is taken to ensure that the burden is shared fairly by all segments of society.

The crisis in Greece has been a dominant feature of the global economic scene over the past two years. It has also had profound international repercussions, a few of which are paradoxically not unwelcome.


On the negative side, the crisis has:

  • Led to a widening of interest rate spreads across much of the euro area.

  • Generated uncertainty about the stability and viability of the European banking sector and of the euro area project, thereby undermining business and consumer confidence within and beyond the borders of the region and even threatening to push the global economy back into recession.

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