Economic and financial changes since the onset of the global and euro area crises

With the introduction of the euro and the mispricing of sovereign (Greek) risk, a flux of funding inundated Greece and helped fuel an impressive growth rate (averaging 4%) in 2000-2008. Growth, combined with low inflation since monetary policy was managed by the European Central Bank (ECB), produced a flattering picture of an economy suffering from serious reform resistance. Growing fiscal and external imbalances were thus left unaddressed. In 2009 the fiscal deficit reached 15%, while Greece’s competitiveness loss against its trading partners in 2000-2008 was 30%, leading to a current account deficit exceeding 15%. The government sector was crowding-out the tradeables sector.