Summary: This Country Focus discusses the factors underlying the external imbalances in Greece. The deterioration in the lending position of the Greek economy mirrors an increasing gap between savings and investment, resulting from a combination of both rising investment and falling savings. Public and private sectors have alternated as the driving force of the deterioration in the net lending position. The growing and persistent external imbalances have led to the build-up of substantial foreign debt, bringing with it a risk to medium-term growth and jeopardising the real convergence process with the euro-area. Although the elimination of the exchange rate risk means that, in the short-term, an abrupt reversal of capital flows seems less likely, the pace of external debt accumulation may not be sustainable in the long-run and will eventually prompt some adjustment. In the context of the ongoing financial crisis, the implied re-pricing of risk and the possible implications regarding the financing of large current account deficits, this article focuses on the factors underlying the external imbalances of Greece.
Physical Description: 6 p.

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