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Greece and the Euro: A Mundellian Tragedy

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  • George Alogoskoufis

Abstract

This paper analyzes the process of destabilization, crisis and adjustment in the Greekeconomy since the accession of the country to the European Union and, subsequently, the euro area. It reviews four policy cycles of the past 40 years, the four acts of the Greektragedy, and discusses alternative ways forward, following the sudden stop and the great depression of the 2010s. It concludes that despite the significant constraints implied by continued participation in the euro area, namely a stark Mundellian conflict between internal and external balance, exiting the euro area risks further destabilizingthe economy and bringing about a return of the problems of the 1980s. The currentchallenge for Greece is to seek to remain and prosper in the euro area. This would require a policy mix based on supply side reforms which would allow for a sustained recovery without the reemergence of external imbalances.

Suggested Citation

  • George Alogoskoufis, 2019. "Greece and the Euro: A Mundellian Tragedy," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 136, Hellenic Observatory, LSE.
    • Handle: RePEc:hel:greese:136
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    Cited by:

    1. Ioannis Laliotis, 2019. "Did the Economic Adjustment Programmes Deliver Wage Flexibility in Greece?," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 141, Hellenic Observatory, LSE.
    2. Nikolaos Varotsis & Ioannis Katerelos, 2020. "Tax behaviour relating to the review of a revised regional tax policy: a study in Greece," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-16, December.
    3. George Alogoskoufis, 2023. "The State and the Economy of Modern GreeceKey Drivers from 1821 to the Present," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 184, Hellenic Observatory, LSE.
    4. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos, 2021. "Austerity, Assistance and Institutions: Lessons from the Greek Sovereign Debt Crisis," Open Economies Review, Springer, vol. 32(3), pages 435-478, July.
    5. Chisiridis, Konstantinos & Mouratidis, Kostas & Panagiotidis, Theodore, 2022. "The north-south divide, the euro and the world," Journal of International Money and Finance, Elsevier, vol. 121(C).

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    More about this item

    Keywords

    Greece; Euro Area; fiscal policy; monetary policy; competitiveness; current account;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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