Lessons from the Greek Crisis: Past, Present, Future

The Greek crisis has taken a heavy toll on incomes, employment and wealth. It took eight years, three adjustment programmes, one major debt restructuring and three rounds of bank recapitalization to resolve the crisis. Several factors can explain the length and depth of the Greek crisis: policy mistakes, delays, political resistance to the implementation of the required reforms and deficiencies in the Economic and Monetary Union (EMU) architecture. Despite all these, the implementation of a bold economic adjustment programme has eliminated macroeconomic imbalances, improved labour cost competitiveness and reformed various sectors of the Greek economy. The banking system has been restructured and recapitalized and its corporate governance improved. The economy is now recovering; its openness has improved and has started to rebalance towards the tradable, export-oriented sectors. Significant challenges and crisis-related legacies remain: high levels of public debt, nonperforming loans and unemployment. To address these challenges, emphasis must now be placed on implementing the reforms required to speed up the recovery and to accelerate the rebalancing of the economy towards a knowledge-based and export-led growth model. Bold steps should be taken towards the completion of the EMU, by promoting greater political solidarity and fostering risk-sharing.