Greek fiscal crisis and repercussions for the property market

Abstract

The aim of the paper is to present a review of the fiscal imbalances and debt crisis in Greece and identify the possible links with the recent developments in the Greek property market. We follow a non-technical approach to discuss a number of factors that have contributed to the fiscal crisis that Greece has been experiencing since October 2009. We critically analyse both the “internal” causes of the deteriorating fiscal stance of the Greek economy (that is, the prolonged macroeconomic imbalances that the Greek economy faces and the credibility problem of macroeconomic policy) and the “external” factors that might have contributed to the Greek fiscal crisis (that is implications of the recent financial turmoil and the timing of the response of Europe to the Greek fiscal crisis). We then study the extent to which fiscal imbalances and the debt crisis have affected the Greek property sector. One of the distinctive features of the paper is to critically discuss the direct and indirect effects of the prolonged macroeconomic imbalances on the Greek property sector. Our analysis indicates that the current fiscal stance of the Greek economy and the Greek property market crisis are intertwined. We believe that these results are useful and provide some evidence that current economic recession has a considerable adverse effect on the property sector in Greece.