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Understanding the Greek Crisis
Michael Mitsopoulos and Theodore Pelagidis, World Economics, March 2011
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.

Related thinking:
    The IMF’s Uneasy Excursion into the Euro Zone
Graham Bird, World Economics, September 2015
    The Eurozone: Was the UK Right to Opt Out?
Julian Gough, World Economics, September 2015
    Data on Singapore’s Sovereign Wealth Fund is Flawed
Christopher Balding, World Economics, September 2015


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