Wednesday, July 6, 2011

A Short History of the Greek Debt Crisis

Puzzled about the origin of the problem? Here is a useful reminder of what happened (a post in “The Denouement”). It lacks, however, an explanation of why it happened: a continuous deterioration of the economy’s competitiveness due to positive differential inflation in Greece versus other eurozone countries, a major continuous reevaluation of the euro versus the dollar (and yuan), the 2008 crisis striking an economy submitted to a restrictive (eurozone) exchange rate policy, and thus an accelerated recourse to the only policy instrument available to dampen the shock: budgets deficits and debt, all the more attractive since the interest rate was artificially lowered by the euro.

Nevertheless, have a look at the post here and especially at the list of major creditors of Greece, namely French and German banks and governments. It explains the current self-defeating policy followed by … er … the French and German governments.

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