ΑΡΘΡΑΔΙΑΦΟΡΑ

30.06.2010

Greece’s Crisis: Testing the Viability of the Euro Project

Yannos Papantoniou, former Minister of Economy and Finance of Greece

 

Prepared remarks delivered at the Peterson Institute for International Economics

 

March 12, 2012

 

 

Origins of the Debt Crisis

 

The graphs containing economic indicators for the major currency areas in the advanced sector of the world economy suggest that the euro area’s debt crisis does not spring from some fundamental weakness in its overall performance [see Indicators 1 and 2, pp. 5–6]. Per capita incomes are similar to Japan’s and within reasonable distance from those prevailing in the United States. Government deficits are lower than either in the United States or Japan and have grown less than in the United States during the global financial crisis. Debt levels also compare favorably while their growth is more subdued than in the United States and Japan. The euro area aggregate current account is balanced as opposed to Japan’s surplus and the US deficit. Germany’s substantial current surplus stands out as an exception.

 

Turning to the euro area’s interior, however, interesting divisions emerge particularly between the periphery (Greece, Italy, Spain, Portugal, and Ireland) and the core (the remaining 11 countries—excluding Estonia). Income levels in the core are higher and the difference has widened during the global crisis. Deficit and debt levels are comparable but the dynamics of debt growth has been stronger in the periphery than in the core during the crisis partly because of deeper recession. The more pronounced difference concerns the current accounts. Large current deficits in the periphery are mirrored by equally important surpluses in the core, particularly in Germany, reflecting mainly differences in productivity and competitiveness.