first, in october the newly - elected greek government announced that the 2009 fiscal deficit would be 12. 7 per cent of gdp, more than double the previous government ’ s projection. in turn, the 12. 7 per cent figure would undergo further upward revisions, bringing it up to 13. 6 per cent of gdp. second, in november 2009 dubai world, the conglomerate owned by the government of the gulf emirate, asked creditors for a six - month debt standstill. that news rattled financial markets around the world and led to a sharp increase in risk aversion. in light of the rapid and sharp worsening of the fiscal situation in greece, financial markets and rating agencies turned their attention to the sustainability of greece ’ s fiscal and external imbalances. the previously - held notion that membership in the euro area would provide an impenetrable barrier against risk was shaken. it became clear that, while such membership provides protection against exchange - rate risk, it cannot provide protection against credit risk. the subsequent course of events has made global headlines, so i do not need to dwell on details. allow me, however, to highlight the following. first, in contrast to the origins of initial stage of the global crisis in august 2007, which involved a crisis in the u. s. banking sector that spilled over to the real economy, in greece the problems posed by both the fiscal and external imbalances spilled over to the real economy. the greek banking sector has had sound fundamentals as reflected, for example, in high capital - adequacy and tier 1 ratios. second, the crisis in greece contributed to widening spreads in other euro - area countries judged to have large fiscal and / or external imbalances. the spread of the crisis to other parts of a geographical area represents a continuation of a process observed in other recent crises, including those in latin america in 1994 / 95 and in asia in 1997 / 98. third, the commitment by the greek government to reduce the fiscal deficit from last year ’ s 13. 6 per cent of gdp to 8 per cent this year and below 3 per cent in 2013, and the 110 - billion euro support package agreed between the greek government and the european commission, the ecb, and the imf, are unprecedented in terms of magnitudes. i have no doubt that the government will take whatever measures are needed to attain its fiscal objectives to ensure fiscal sustainability. it will, however, take some time to convince the markets of the government

george a provopoulos : the greek economic crisis and the euro speech by mr george a provopoulos, governor of the bank of greece, at the scholars association of the alexander s onassis public benefit foundation international conference, athens, 21 june 2010. * * * it is a great pleasure to take part in this conference on the “ financial and economic crisis ” organised by the scholars association of the onassis foundation. aristotle onassis, the originator of this foundation, was, among other things, a creative thinker and a philanthropist. he arrived in greece in the early 1920s as a refugee and, through wise decision - making and hard work, became an internationally - prominent entrepreneur. however, he never forgot his origins and, as exemplified by this foundation, passed on to future generations the ability to advance scientific and artistic knowledge. my presentation will deal with the origins of the present crisis in europe and the lessons of the crisis for europe ’ s single currency, the euro. greece is at the epicentre of the crisis ; my presentation will, therefore, highlight the greek roots of the crisis. the origins to provide some perspective to the present situation, let us look back just a year. at that time, conferences were being held throughout europe celebrating the tenth anniversary of the euro. academic economists were writing articles speculating that the euro was poised to challenge the u. s. dollar as the leading international currency. what a difference a year makes! today, analysts are writing about a possible break - up of the euro zone, a notion that, as i will explain, is absurd. meanwhile, the euro has fallen sharply against the dollar since the beginning of this year, and the speculation that the euro will soon replace the dollar as the leading international currency has subsided. how did we come so far so fast? how could greece, a country with only about 2 ½ per cent of euro - area gdp, cause tremors of such magnitude that they have shaken the foundations of europe ’ s single currency? to answer these questions, we need to consider the basis upon which monetary union in europe has been built. the inception of the euro zone on january 1, 1999 marked a world premiere. for the first time in history, sovereign states – eleven at that time – abandoned their own national currencies in favor of a common currency, the euro, and surrendered their monetary - policy sovereignty to a newly - created, supranational institution, the european central bank. all