Greece and European Monetary Union: a challenge or a helping hand?
By almost all macroeconomic accounts, Greece is the odd man out in the process of satisfying the criteria set out by the Maastricht Treaty as the preparation for Economic and Monetary Union. The Greek public debt is approaching 100% of GDP, and shows no sign of coming down as long as the current fiscal policies are applied. Owing to high interest payments, the budget deficit stands at 14% of GDP even after the primary deficit has been brought down to 1%. Inflation persists at 15% despite the prolonged recession in the Greek economy. The exchange rate is depreciated by 10–12% annually against the Ecu currencies, but this is still not enough to correct the accumulated loss of competitiveness caused by inflation differentials with Greece’s trading rivals. After the escudo joined the Exchange-Rate Mechanism in March 1992, the drachma was further isolated as the only currency left outside the band.
KeywordsSocial Cohesion Inflation Rate Indirect Taxis Real Effective Exchange Rate Maastricht Treaty
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