Wall Street Journal
November 14, 2012
Greece's banking system is poised to turn a corner. This matters a great deal both to Greece and to the rest of Europe. Returning Greece to growth is the lever that will finally address the country's challenges—from its debt burden to its budget deficit and rising unemployment.
The sovereign-debt crisis that erupted in Greece in 2009 was brought about by the country's large fiscal and external deficits, the consequences of which had been forewarned by the Bank of Greece. The crisis has inflicted a devastating toll on the Greek economy. Real output has fallen by 20%—and continues to fall. The unemployment rate has risen to 25% from under 8%—and continues to rise. Living standards have been slashed—and continue to decline. The magnitudes match those of the Great Depression at its worst.
Yet amid such hardship and despair, the foundations for a revitalized and competitive Greek economy are being laid. Over the past three years Greece has made important progress in restructuring its economy. Fiscal consolidation has been remarkable: Despite the contracting economy, which creates moving targets for fiscal consolidation, the primary fiscal deficit has been reduced by nine percentage points as a share of GDP.
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