There is little doubt that the ongoing crisis in the market for Greek government bonds is a major test for the sustainability of the Eurozone. As such, it is certain to attract, in due course, considerable academic attention shedding light to its origins, mechanics and lessons. But with events still unfolding, time is of essence: Any insights to the crisis’ likely causes, mechanics and outcomes, even imperfect, are bound to be useful for the purpose of managing the crisis. When in unchartered territory academics’ typical initial response tends to be a first-pass assessment using tools available at hand. In a recent paper (Arghyrou and Tsoukalas, 2010a), we do precisely that. More specifically, we use insights from the literature on currency crises to offer the first, to the best of our knowledge, analytical treatment of the crisis’ causes, mechanics and likely outcomes.
First, we would like to clarify that we are strong supporters of the European monetary integration project. Our view is that the single currency involves significant potential economic and political benefits for all its participants which far outweigh its potential costs. We thus believe it is right to spare no effort to ensure the euro’s continued stability and success.