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Faculty Research Working Paper Series
Carmen Reinhart
Minos A. Zombanakis Professor of the International Financial System
phone: (617)496-8643
The Pitfalls of External Dependence: Greece, 1829-2015
Reinhart, Carmen M., and Christoph Trebesch. "The Pitfalls of External Dependence: Greece, 1829-2015." HKS Faculty Research Working Paper Series RWP15-065, October 2015.
Abstract
Two centuries of Greek debt crises highlight the pitfalls of relying on external financing. Since its independence in 1829, the Greek government has defaulted four times on its external creditors – with striking historical parallels. Each crisis is preceded by a period of heavy borrowing from foreign private creditors. As repayment difficulties arise, foreign governments step in, help to repay the private creditors, and demand budget cuts and adjustment programs as a condition for the official bailout loans. Political interference from abroad mounts and a prolonged episode of debt overhang and financial autarky follows. We conclude that these cycles of external debt and dependence are a perennial theme of Greek history, as well as in other countries that have been “addicted” to foreign savings.
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