White Paper No. 09, 2012

The Greek Crisis Two Years On: Policy Options and Resolution Prospects

In a speech given on occasion of the 2012 Spring Membership Meeting of the Institute of International Finance in Copenhagen on 7 June, Lucas Papademos addresses issues relevant to the pre-election debate in Greece and the decisions to be taken immediately after the elections. Among the issues discussed are the risks associated with two potential vicious circles. The first being a vicious circle of weaker economic activity, more fiscal consolidation measures and resulting deeper recession. Second, the risk of a further decline in confidence adversely affecting economic activity, bank system liquidity, credit expansion, and reducing public support for the second bail-out program for Greece. Papademos argues that the perceived trade-off between "austerity" and "growth-promoting" policies can be reconciled. The main policy message is for Greece to "stay the course" and implement effectively, supplement appropriately and amend reasonably the new economic adjustment program.