Greek fiscal crisis

It would not take an expert to see that the greek economy was headed for serious trouble even when most greeks were celebrating the country's accession to the eurozone back in 2001. 

A few years later, in the summer of 2004, I wrote a short article arguing that the abolition of the drachma meant that the country should concentrate on reducing its public debt. 

The basic idea was that with an 'excessive' debt ratio (i.e. the level of debt owed by the government as a percentage of the size of the economy) and no independent monetary policy Greece was depriving itself from economic policy tools that could be deployed during a potential recession. 

Any economic downturn would be seen by the markets as extremely difficult to tackle (in the absence of fiscal leeway and with no ability to soften monetary policy any structural response would be longer-term in nature) and this would lead to an increase in interest rates paid by the government to borrow in the international bond markets.

I think that this is a clear example of myopia: governments seeking re-election concentrate on short-term economic targets neglecting the country's longer-term needs. 

The current situation where the greek economy is effectively ran by the IMF, the ECB and the EU is a loss of national sovereignty and is, obviously, a very heavy price to pay.

A useful lesson perhaps for those who think that countries can increase their borrowing ad infinitum -the day of reckoning always comes! 

For the greek economy, however, it may be a blessing in disguise as structural changes avoided for decades by timid politicians are now taking place.

My original paper from 2004 (in greek only -sorry!)