LAHORE - “In Greece, the GDP fell by 25% in five years, unemployment reached 28% while public debt as per cent of GDP rose to 175% reflecting mainly the collapse of output,” said Dr Yannos Papantoniou in a lecture delivered at the Lahore School of Economics on Tuesday.

Dr Papantiniou, former economy and finance minister of Greece (1994-2001) and President of the Centre for Progressive Policy Research, in his lecture “Economic Crisis in Greece and the Future of the Euro” was of the view that if talks between the lenders (ECB, IMF, and the EU) and Greece stall, Greece’s economy would sink further into recession, and social tensions would rise as living standards would register a further sharp decline.

He emphasized that Greece’s economic problems did not arise during the process of acceding to the euro area, but began when large current imbalances emerged among member countries soon after the currency union’s creation in 2000.  Massive current account deficits in the weaker economies led to the accumulation of public and private debt while the northern Europeans were running surpluses.  The policies that the eurozone has initiated to tackle the debt crisis have been inadequate and even self-defeating. “Greece’s never ending economic crisis revealed critical flaws and weaknesses in the eurozone’s constitution,” according to Dr Papantiniou.

, who is currently a visiting Professor at the Lahore School of Economics. He was of the view that in a currency union, individual economies cannot alter their exchange rates to account for changes in relative competitiveness.

The resulting price stickiness tends to delay macroeconomic stabilization and structural adjustment, leading to rising debt and unemployment in weaker economies.

Without free labour mobility, fiscal transfers are the euro area’s only option to ease debt repayment and, by stimulating economic activity, boost employment.