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Author(s): Georgios Moschovis & Mateo Capo Servera (European Commission)
External imbalances of the Greek economy: the role of fiscal and structural policies - Georgios Moschovis & Mateo Capo Servera (91 kB)
This Country Focus discusses the factors underlying the external imbalances
in Greece.
The deterioration in the lending position of the Greek economy mirrors an
increasing gap between savings and investment, resulting from a combination of
both rising investment and falling savings. Public and private sectors have
alternated as the driving force of the deterioration in the net lending
position. The growing and persistent external imbalances have led to the
build-up of substantial foreign debt, bringing with it a risk to medium-term
growth and jeopardising the real convergence process with the euro-area.
Although the elimination of the exchange rate risk means that, in the
short-term, an abrupt reversal of capital flows seems less likely, the pace of
external debt accumulation may not be sustainable in the long-run and will
eventually prompt some adjustment. In the context of the ongoing financial
crisis, the implied re-pricing of risk and the possible implications regarding
the financing of large current account deficits, this article focuses on the
factors underlying the external imbalances of Greece.
JEL classification: F32, H62, O47
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