Once more surpassing the threshold of the Stability Pact

Greek Centre of European Studies and Research
The severe financial crisis, as it has evolved, captured the attention of public opinion as well as of the political system in Greece. Initially the interest was more of a theoretical kind, since the Greek banking system was thought to be less exposed to ‘toxic’ sub-primes and the like; the first major indication that ‘something dangerous was happening’ came when the (then) Greek Minister of Economy and Finance took the lead in Europe (just after the Irish) to call for an increase to the legal bank deposits insurance (to 100,000 Euro) and to a ‘political’ blanket coverage of all deposits. Soon afterwards, a 28 billon Euro salvage package (+/- 10 percent of GDP) was voted in Greek Parliament to support the banking system – exposed as it was discovered to be to Southeastern Europe emerging markets, to Turkey and even Black Sea countries risk. As the days passed, the real economy also started to flinch and in early 2009 the refinancing of Greece’s public debt (which according to 2007 data stood at 93.4 percent of GDP) was discovered to be quite a problem, while the spread between Greek government paper and German bonds widened to more than 250 basis points. Thus, all complacency vanished and Greece really ‘discovered’ the financial crisis in a scary way.
The awakening was rude for the political system; with a budget deficit once more surpassing the threshold of the Stability Pact, Greece seated a situation of ‘excessive deficit’ with all negative consequences associated to it. But at the same time, the strict EU/Eurozone discipline looming, appeared to constitute the only available safety net. In a book devoted to this awakening, former Prime Minister Costas Simitis described exactly how this “new age” financial crisis constitutes both for the EU and for Greece the proof that “an intergovernmental approach is problematic while some sort of economic governance must be established […]. The problem of one country can become a problem for all. Economic governance that until now has not been acceptable will be imposed by reality – be it through existing institutions or with new forms of cooperation”.[1]

[1] Costas Simitis: “The Crisis” (in Greek), Polis Publishing, Athens 2008, p. 118.