"Twin deficits" in Greece in search of causality.

The paper discusses the trajectories of the Greek public deficit andsovereign debt between 1980 and 2010 and its connection to thepolitical and economic environment of the same period. We payspecial attention to the causality between the public and the externaldeficit in the period after 1995, the post-Maastricht treaty period.We argue that, due to the European monetary unification processand the adoption of the common currency, causality ran fromthe external deficit to the public deficit. This hypothesis is testedeconometrically using both Granger Causality and Cointegrationanalyses. We find empirical support for this hypothesis.