||Contagion and the European Financial Crisis
The eurozone debt crisis began in earnest within days of the October 4, 2009 election victory for George Papandreou’s Pan-Hellenic Socialist (Pasok) party in Greece. In the immediate aftermath of the election, Papandreou announced major revisions to the previous government’s budget deficit projections. On October 21st, the newly formed government informed the eurozone’s statistical agency, Eurostat, that the country’s 2008 deficit was 7.7% of GDP rather than the previously reported 5%. They also revised the 2009 deficit projection upward from 3.7% of GDP to 12.5% – a figure that eventually rose to 15.4%.
The significant correction of Greek deficit statistics sent the first large ripples of concern through bond markets. Since then, investors have increasingly sought refuge from the sovereign debt of “risky” countries, driving a growing wedge between the borrowing costs of fiscally troubled eurozone economies and the cost of borrowing for countries seen as “safe,” particularly Germany. This brief traces how this unfolded as the “Greek” crisis metastasized into a wider eurozone crisis. It describes how and why sovereign bondholders fled from Greek, then Irish, Portuguese, Italian, and now Spanish debt.
- Greece, Part I
- Greece, Part II