The Greek financial crisis: growing imbalances and sovereign spreads

Heather Gibson, Stephen G. Hall and George Tavlas
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Stephen G. Hall: University of Leicester

No 124, Working Papers from Bank of Greece

Abstract: We discuss the origins of the Greek financial crisis as manifested in the growing fiscal and current-account deficits since euro-area entry in 2001. We then provide an investigation of spreads on Greek relative to German long-term government debt. Using monthly data over the period 2000 to 2010, we estimate a cointegrating relationship between spreads and their long-term fundamental determinants (including a measure of the fiscal situation, competitiveness of the Greek economy, economic activity and oil prices, reflecting the high dependence of the Greek economy on imported energy) and compare the spreads predicted by this estimated relationship with actual spreads. We find that spreads were significantly below what would be predicted by fundamentals from end-2004 up to the middle of 2005; by contrast, since May 2010, actual spreads have exceeded predicted spreads by some 400 basis points.

Keywords: Greek financial crisis; sovereign spreads (search for similar items in EconPapers)
JEL-codes: E63 G12 (search for similar items in EconPapers)
Pages: 42
Date: 2011-03
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: The Greek financial crisis: Growing imbalances and sovereign spreads (2012)
Working Paper: The Greek financial crisis: growing imbalances and sovereign spreads (2011)
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