Greek Crisis: A Dire Warning From Argentina and Latvia

Uri Dadush, Bennett Stancil
How Do Greece and Others Compare?


Greece’s vulnerabilities have been building for years, and are in some respects as or more pronounced than those of Argentina and Latvia. From 2002 to 2007, domestic demand grew by an average of 4.2 percent, compared to growth of 1.8 percent in the Euro area. Foreign borrowing helped to finance this relatively rapid growth, and higher inflation in Greece resulted in a 17 percent appreciation of the real effective exchange rate over the past four years, less than various estimates for Argentina and Latvia. The current account deficit increased from 5.8 percent of GDP in 2004 to 14.4 percent in 2008, much larger than Argentina’s increase but smaller than Latvia’s. Greece’s public debt has reached an estimated 112 percent of GDP, almost double Argentina’s debt of 63 percent of GDP prior to devaluation, and about 6 times larger than Latvia’s pre-crisis levels.

It is in Europe’s and the international community’s vital interest to support Greece and facilitate its adjustment.



It is unlikely that a deepening crisis in Greece will be confined to that country. In Spain, the current account deficit exceeded 10 percent of GDP in 2007, and the recession has already pushed unemployment above 20 percent. Though Italy’s current account deficit—2.5 percent of GDP in 2009—remains moderate, this has come at the expense of growth underperforming its Euro area partners by an average of 1.2 percent over the last five years. With Italian government debt rising to 116 percent of GDP, a crisis in Greece and Spain could quickly become a crisis in Italy.

International Economic Bulletin, March 03, 2010
Uri Dadush is a senior associate in and the director of Carnegie’s International Economics Program. Bennett Stancil is a junior fellow in Carnegie’s International Economics Program. 

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