Small Economies, Big Problems, and Global Interdependence

At least on paper, Greece should not be a systemically important economy. Yet there are several reasons why the Greek crisis is having substantial spillover effects – and Greece is not alone in this respect among small economies.

WASHINGTON, DC – Greece’s GDP, at about $300 billion, represents approximately 0.5% of world output. Its $470 billion public debt is very large relative to the Greek economy’s size, but less than 1% of global debt – and less than half is held by private banks (mainly Greek). Barclays Capital estimates that only a few globally significant foreign banks hold close to 10% of their Tier 1 capital in Greek government bonds, with the majority holding much less.

So, at least on paper, Greece should not be a systemically important economy. Yet there are several reasons why the Greek crisis is having substantial spillover effects. Moreover, Greece is not alone in this respect.

First, in the Greek case, there is the fear of contagion to other distressed European economies, such as Portugal and Ireland, or even Spain and Italy. There are also substantial investments by American money-market funds in instruments issued by some of the exposed banks.

To continue reading, please log in or enter your email address.

To continue reading, please log in or register now. After entering your email, you'll have access to two free articles every month. For unlimited access to Project Syndicate, subscribe now.

required

By proceeding, you are agreeing to our Terms and Conditions.

Log in

http://prosyn.org/JI65Z1E;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.