The Eurozone crisis started as a sudden stop to cross-border capital inflows. This chapter suggests that countries with current-account surpluses did not endure lasting financial stress. The balance of payments crisis then became a public debt crisis, where the public debt which mattered was that owed to foreigners. Overall, the crisis proved much more difficult to deal with given the predominance of bank financing, thinly capitalised banks, the absence of a common mechanism to deal with failing banks, and the absence of a common lender of last resort.
Daniel Gros, 07 September 2015
Jeffrey Frankel, 07 September 2015
No-one is optimistic about the Eurozone’s prospects. This column highlights the major causes of the Eurozone crisis, highlighting that many US economists thought the euro a bad idea from the outset. Previous emerging market crises have important lessons for Europe – if Alexis Tsipras were able to shift gears in the way that Kim dae Jung did in Korea and Lula did in Brazil, he would better serve his country.
Agnès Bénassy-Quéré, 07 September 2015
The problems in the Eurozone are not a side effect of the Global Crisis but rather date back to the Maastricht treaty. This chapter proposes a few possible remedies. First, it is necessary to make debt restructuring possible within the Eurozone. In particular, the risk loop between sovereigns and banks needs to be stopped through more diversified balance sheets. The second suggestion involves more shared sovereignty, not only for debtor countries, but also for creditors. At a minimum, the Eurozone needs a fiscal backstop for its banking union.
William Cline, 24 August 2015
Economists continue to debate whether – and to what extent – Greek debts should be relieved. This column takes through the details of Greek debt, what relief options are open to Greece, and what the likely consequences of relief might be for all parties. Yet again, there are no easy choices – but that doesn’t mean economists and policymakers shouldn’t try.
Fabio Ghironi, 18 July 2015
Success of the German-inspired solution for the latest Greek crisis is far from assured. If it fails, the Eurozone may be changed forever. This column argues that the failure would lead to an outcome that has been favoured for decades by Germany’s Finance Minister, Wolfgang Schäuble. Perhaps the package the Eurozone agreed is just a backdoor way of getting to the ‘variable geometry’ and monetary unification for the core that the Maastricht criteria had failed to achieve.
Paul De Grauwe, Yuemei Ji, 16 July 2015
When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.
Jeffrey Gordon, Georg Ringe, 17 July 2015
The Greek Crisis is a crisis rather than a problem due to the vulnerability of Greek banks. While the banks have deep problems, this column argues that these would have been mitigated if a fully operational banking union were in place. A full banking union requires joint banking supervision, joint bank resolution, and joint deposit insurance. The EZ only has the first so far. Completing the banking union must be part of any long-term solution.
Thorsten Beck, 15 July 2015
Monday’s deal was a political compromise consistent with the political constraints of Greece and its creditors. It is doubtful, however, that it will provide a long-term solution to Greece’s economic crisis. At a minimum, the momentum should be used to eliminate the option of Grexit once and for all. The bank-sovereign ties should be cut to turn Greek banks from a source of crises into a growth-supporting sector.
Charles Wyplosz, 14 July 2015
The new bailout deal for Greece was not easy. This column argues that it was also a failure. It will not be enough to recapitalise banks, it asks for structural reform that exceeds Greek capacities, and it raises the Greek debt-to-GDP ratio to unsustainable levels. In a few months or quarters, the programme will fail and the Grexit question will flare up again.
Julian Schumacher, Beatrice Weder di Mauro, 12 July 2015
The sustainability of Greek debt is central to the negotiations. To date the sustainability calculations have been based on the IMF’s standard models for calculating sustainability for countries with market access. This column argues that these are not appropriate for Greece – a middle-income country with highly concessionary financing. The ESM should develop a new, appropriate analytic tool to reflect Greece’s special situation.
Olivier Blanchard, 10 July 2015
The Greek crisis is in a critical phase. This column, by the IMF’s Chief Economist, reflects on the various critiques of the handling to date of Greece’s problems.
Francesco Caselli, Camille Landais, Christopher Pissarides , Silvana Tenreyro, Wouter den Haan, 09 July 2015
Greek exit from the Eurozone has uncertain and potentially dangerous implications for all involved. This column, signed by 25 LSE economists, urges the Greek government and its creditors to act more responsibly. The first priority is to get Greece on a path of sustainable growth by relaxing austerity in the near term and linking debt restructuring to essential structural improvements.
Paul De Grauwe, 03 July 2015
Greece’s debt is 180% of GDP, which seems to make it insolvent without large primary surpluses. This column argues that since restructuring lowered the interest burden to just 2% of GDP, Greece is solvent – or would be with nominal GDP growth of just 2%. The ECB’s misdiagnosis has caused an unnecessary banking crisis. The solution is to accept that Greek debt is sustainable, so the austerity programme can be relaxed and liquidity support provided to the Greek banking sector.
Barry Eichengreen, 01 July 2015
Barry Eichengreen’s VoxEU column arguing that the euro was irreversible has been viewed over 230,000 times. Now it appears to be wrong. In this column, originally posted on the website ‘The Conversation’, he looks to see where his predictions went wrong. Basically the economic analysis – which focused on bank runs – was right. He went wrong in overestimating the political competence of Greece and its creditors.
Domingo Cavallo, 30 June 2015
Grexit and the reintroduction of the drachma would have severe consequences for the Greek people. This column argues, based on Argentina's experience, that this would produce a sharp devaluation of the drachma, inflation, and a severe reduction in real wages and pensions. The effects would be far worse than the reductions that could have occurred as a consequence of the policies proposed by the Troika. By resuming negotiations, continuing with measures to achieve fiscal consolidation and carrying out adequate structural reforms, Greece could reverse the current situation in a sustainable way. It has the great advantage that the ECB, most European governments and the IMF are willing to resume negotiations.
Charles Wyplosz, 29 June 2015
This weekend’s dramatic events saw the ECB capping emergency assistance to Greece. This column argues that the ECB’s decision is the last of a long string of ECB mistakes in this crisis. Beyond triggering Greece’s Eurozone exit – thus revoking the euro’s irrevocability – it has shattered Eurozone governance and brought the politicisation of the ECB to new heights. Bound to follow are chaos in Greece and agitation of financial markets – both with unknown consequences.
Thorsten Beck, 28 June 2015
The breakdown of negotiations between Greece and the Troika comes as a shock. It is not, however, the end of the game. This column argues that the rupture can serve as a starting point for a new relationship between Greece and its creditors – an approach that does not provide fresh cash to the Greek government and does not impose specific policy reforms from outside.
Richard Baldwin, 21 June 2015
Vox columnists have posted a steady stream of research-based policy analysis and commentary on the Greek Crisis. This column provides a list of all the relevant columns posted since the beginning of 2015.
Elias Papaioannou, Richard Portes, Lucrezia Reichlin, 19 June 2015
Greece seems to be on the verge of an agreement that would release much needed funds. This column argues that an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. The focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.
Carlos Cantú, KeyYong Park, Aaron Tornell, 12 April 2015
The wisdom of structural reform during a crisis is a subject of heated debate. This column compares Greece’s experience to that of Mexico during the debt crisis of the 1980s. Mexico did not receive a haircut until seven years into the crisis – after structural reform was already underway. In Mexico that reform was the outcome of an internal conversation – not a diktat from the outside – and it happened during the height of the crisis.