Two crises: Mexico and Greece

February 19, 2012

A post by Dave Backus and Tim Kehoe

We talked last night about how differently the crises played out in Mexico and Greece.  The question, of course, is why, but we’ll leave that one for you.  Here are some of the specifics — and keep in mind that Mexico’s economy is roughly five times the size of Greece’s.  

Mexico.  In December 1994, Mexico was unable to roll over its government debt, most of it short term, much of it indexed to the dollar.  On January 31, 1995, the US loaned Mexico $20b, with oil revenue as collateral, and other governments and international agencies arranged roughly $30b in lines of credit.  Mexico ran a government surplus in 1995 and paid back the loan in full in 1997.  None of the lines of credit were used.  After shrinking by 6% in 1995, the Mexican economy grew 5% in 1996 and 7% in 1997.

Greece.  In late 2009, interest rates on Greek debt rose sharply.  Greece ran government deficits of 37b euros in 2009, 24b in 2010, and 22b in 2011.  (A euro is currently worth 1.32 US dollars.  These numbers are from the EIU, but there remains some uncertainty about Greece’s finances.)  Since 2010, all of this has been financed with the direct support of the EU and the IMF, and the indirect support of the ECB.  Greece is currently negotiating support for partial repayment of its debt, but continues to resist calls from creditors to cut its deficit further.  The Greek economy continues to contract, and there is no end in sight for the Greek crisis.  

One Response to “Two crises: Mexico and Greece”

  1. […] This crisis has set records for longevity. It’s been brutal for the Greek economy, but our students lost interest several years ago. We’re ready to move on. […]

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