Did lending by foreign banks really cause the Greek debt crisis?


There are a lot of competing narratives going around as to why Greece is in such trouble relative to the rest of the eurozone. A lot of this centers on whether Greek fiscal profligacy or poor credit controls by foreign banks was the main cause of the Greek debt crisis. Let me throw my hat into this ring with a few comments. What I write below will generally shade toward the problem being one of structural fiscal deficits and an ECB monetary policy that was inappropriate for the eurozone periphery as a whole and Greece in particular.

Now, this is designed to be a quick post. So I am not going to be able to summon the statistical data that a longer-form post has but I may do at a later date. But let me start out with the data I showed you on Credit Writedowns in 2010 when I asserted that Spain is the perfect example of a country that never should have joined the euro zone. What stood out for me at that time was the degree to which Spain and Ireland had both primary and absolute fiscal surpluses during the private sector credit booms in the 2000s while Greece did not. I am less familiar with Portugal and I know Italy did not have a big private sector binge. So I will leave them out here. These are the charts I used in 2010 for Spain, Ireland and Greece:


Did lending by foreign banks really cause the Greek debt crisis?

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