Europe's Financial Woes

Richard N. Cooper

< IGE/Prudential International Finance Lecture >

Europe's Financial Woes

- Speaker: Richard N. Cooper, Professor of International Economics, Harvard University

- Date: March 23, 2011.

"Joining the euro instigated, in an indirect sense, the Greek crisis because the interest that had to be paid on government bonds quickly converged to the interest rate of German bonds. Germany is the biggest, and by reputation fiscally soundest, of the European nations. Between 2002—when Greece joined the Euro—and the summer of 2007, the premium the Greeks had to pay over 10 year German bonds was 26 basis points—almost nothing. So Greece could borrow in worldwide financial markets at very low rates by historical Greek standards, and the interest burden on public debt fell quite dramatically. However, instead of using that benefit in a constructive way the Greeks abused it by running deficits even during good years and building up their public debt.."

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