Publication

The case of Greece has ushered in the second phase of the financial crisis, namely that of sovereign default. Members of the euro area were supposed to be shielded from a financial market meltdown. But, after excess spending during the period of easy credit, several euro area members are now grappling with the implosion of credit-financed construction and consumption booms. Greece is the weakest of the weak links, given its high public debt (around 120% of GDP), compounded by a government budget deficit of almost 13% of GDP, a huge external deficit of 11% of GDP and the loss of credibility from its repeated cheating on budget reports.