The Greek Sovereign Debt Crisis

Abstract

Between the beginning of October 2009 and May 10, 2010, financial markets’ attitude towards Greek sovereign debt changed dramatically. In the space of six months, Greece went from being considered a de facto risk-free credit to being singled out as the riskiest in the world. As financing costs surged and access to market finance was closed, in early May 2010 the country received an aid package from the rest of the EMU and from the IMF, after weeks of debate about how the crisis should be dealt with. This episode also led to the creation of the European Financial Stability Facility (EFSF), which provided the Eurozone with an emergency facility ready to be used in case of future need. The creation of the EFSF was not to prove the end of the sovereign debt crisis for either Greece or the Euro area, but it certainly represented a major turn in the policymakers/financial markets dialectic as well as a historic moment for the evolution of the nature and institutional structure of the monetary union and the EU itself.