The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes

19 Pages Posted: 1 Mar 2011

See all articles by Michael Arghyrou

Michael Arghyrou

Cardiff Business School

John D. Tsoukalas

University of Glasgow - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 20, 2011

Abstract

We use insights from the literature on currency crises to offer an analytical treatment of the crisis in the market for Greek government bonds. We argue that the crisis itself and its escalating nature are very likely to be the result of: (i) steady deterioration of Greek macroeconomic fundamentals over 200109 to levels inconsistent with long-term EMU participation; and (ii) a double shift in markets expectations, from a regime of credible commitment to future EMU participation under an implicit EMU/German guarantee of Greek fiscal liabilities, to a regime of non-credible EMU commitment without fiscal guarantees, respectively occurring in November 2009 and February/March 2010. We argue that the risk of contagion to other periphery EMU countries is significant; and that without extensive structural reforms, the sustainability of the EMU is in question.

Suggested Citation

Arghyrou, Michael and Tsoukalas, John D., The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes (February 20, 2011). The World Economy, Vol. 34, Issue 2, pp. 173-191, 2011. Available at SSRN: https://ssrn.com/abstract=1773226 or http://dx.doi.org/10.1111/j.1467-9701.2011.01328.x

Michael Arghyrou (Contact Author)

Cardiff Business School ( email )

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HOME PAGE: http://https://www.cardiff.ac.uk/people/view/609289-arghyrou-michael

John D. Tsoukalas

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

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