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The challenge of restoring debt sustainability in a deep economic recession: the case of Greece

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  • Monokroussos, Platon

Abstract

The present paper studies the evolution of the Greek public debt ratio under different assumptions regarding the size and the degree of persistence of fiscal multiplies, the implementation profile of the applied fiscal adjustment and the response of financial markets to fiscal consolidation. The main results of our simulation exercise can be summarized as follows: a) taking into account Greece’s present debt ratio, a fiscal adjustment can lead to a contemporaneous increase in the ratio if the fiscal multiplier is higher than ca 0.5; b) despite the unprecedented improvement in the underlying fiscal position since 2010, the concomitant increase in the public debt ratio can be mainly attributed to its high initial level, a very wide initial structural deficit as well as the ensuing economic recession; c) notwithstanding its negative initial effects on domestic economic activity, the enormous fiscal effort undertaken over the last 5 years leaves the country’s debt ratio in a more sustainable path relative to a range of alternative scenarios assuming no adjustment or a more gradual implementati

Suggested Citation

  • Monokroussos, Platon, 2014. "The challenge of restoring debt sustainability in a deep economic recession: the case of Greece," LSE Research Online Documents on Economics 59668, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:59668
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    File URL: http://eprints.lse.ac.uk/59668/
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    Cited by:

    1. Monokroussos, Platon & Thomakos, Dimitrios, D. & Alexopoulos, Thomas A., 2016. "The determinants of loan loss provisions:an analysis of the Greek banking systemin light of the sovereign debt crisis," LSE Research Online Documents on Economics 68586, London School of Economics and Political Science, LSE Library.
    2. Rosa VAsilaki, 2016. "Policing the crisis in Greece: The others' side of the story," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 98, Hellenic Observatory, LSE.
    3. Chalari, Athanasia & Sealey, Clive & Webb, Mike, 2016. "A comparison of subjective experiencesand responses to austerity of UK andGreek youth," LSE Research Online Documents on Economics 68585, London School of Economics and Political Science, LSE Library.
    4. Kougias, Konstantinos, 2017. "‘Real’ flexicurity worlds in action: evidence from Denmark and Greece," LSE Research Online Documents on Economics 69576, London School of Economics and Political Science, LSE Library.
    5. Athanasia Chalari & Clive Sealey & Mike Webb, 2016. "A Comparison of Subjective Experiences and Responses to Austerity of UK and Greek Youth," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 102, Hellenic Observatory, LSE.
    6. Jacob A. Jordaan & Vassilis Monastiriotis, 2016. "The domestic productivity effects of FDI in Greece: loca(lisa)tion matters!," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 105, Hellenic Observatory, LSE.
    7. Konstantinos Kougias, 2017. "‘Real’ Flexicurity Worlds in action: Evidence from Denmark and Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 106, Hellenic Observatory, LSE.
    8. Stavros B. Thomadakis, 2015. "Growth, Debt and Sovereignty: Prolegomena to the Greek Crisis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 91, Hellenic Observatory, LSE.
    9. Yannis Tsirbas & Dimitri Sotiropoulos, 2015. "What Greek political elites think about Europe and the crisis? An exploratory analysis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 93, Hellenic Observatory, LSE.
    10. Vassilis Arapoglou, Kostas Gounis, 2015. "Poverty and Homelessness in Athens: Governance and the Rise of an Emergency Model of Social Crisis Management," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 90, Hellenic Observatory, LSE.

    More about this item

    Keywords

    Self-defeating consolidations; fiscal multiplier; public debt; Greece; European Commission;

    JEL classification:

    • N0 - Economic History - - General

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