Pigs Issue

In: Business and Management

Submitted By vikramfalor
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The root-causes of the Greek sovereign debt crisis
Basil Manessiotis paper presented at the 2nd Bank of Greece workshop on the economies of Eastern European and Mediterranean countries Athens, 6 May 2011
1

Introduction
To better understand the current sovereign debt crisis in Greece, a longer view is warranted The 20 year period 1989-2009 is bounded by two major fiscal crises in Greece: the 1989-1993 crisis, and the ongoing crisis.

In both crises deficits exceeded 15,0% of GDP. In between, Greece entered the Economic and Monetary Union and adopted the Euro To facilitate discussion the 20 year period will be divided into two parts: the 1989-1999 period, and the 2000-2009 period.
2

1989-1999: securing EMU membership
The 1989-1993 sub-period: Macroeconomic developments
Weak economic activity (1.2% average growth) Very high inflation (16.8% annual average) Very high real and nominal interest rates Low fixed investment (1.5% annual average)

Fiscal developments
Very high general government deficits (13.6% of GDP average)
The 1990 deficit reached 15.9% of GDP

Primary deficit averaged 4.3% of GDP Fast accumulation of debt
Debt ratio increased from 69.0% of GDP in 1989 to 110.1% of GDP in 1993 Other reasons for debt accumulation

Very high interest payments
From 6.8% of GDP in 1989 to 11.4% of GDP in 1993
3

TABLE 1 Selected Macroeconomic Indicators (annual average rate)
1989-1993 Real GDP growth Fixed investment growth Inflation (CPI) General Government deficit (% of GDP) Primary Deficit (-) or Surplus (+) (% of GDP) Total general government expenditure (% of GDP) Total general government revenue (% of GDP) General Government debt (% of GDP) Current Account deficit (% of GDP) 1,2 1,5 16,8 -13,6 -4,3 48,7 35,1 73,7 -2,6 1994-1999 2,8 6,1 6,8 -7,0 4,0 48,7 41,5 109,0 -3,0 -5,2 0,6 45,5 40,3 101,0 2000-2004 4,5 6,9 3,3
(-5,7)*

2005-2009…...

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