Understanding the Greek Crisis - Unlocking the Puzzle of Greek Banks’ Deteriorating Performance

Abstract

The downward adjustment of economic activity to match the reduced competitiveness of the economy, be it within the Eurozone or outside it as some advocate, will leave the Greek economy with a low level of economic activity, which will match its reduced competitiveness, even though its total indebtedness will still remain at the levels of a developed and competitive nation. The daunting challenges posed in such an event to the ability of the country to service its debt leave as the only reasonable option the choice to remain in the Eurozone and to implement an aggressive reform agenda, as in the conditionality of the support package. Such a strategy, if applied within a rapidly shrinking window of opportunity, can secure both the future prosperity of Greece and its ability to honour the obligations it has already taken on.

Keywords: Greece, banks, debt