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Paul De Grauwe published a very good article (link), discussing the macroeconomic origins of the current debt crisis in Greece.

“The period 1999-2009 has been organised in periods of booms and busts: the boom years were 1999-2001 and 2005-07; the bust years were 2002-04 and 2008-09.

One observes a number of remarkable patterns.

• First, private debt increases much more than public debt throughout the whole period (compare the left hand axis with the right hand axis).
• Second, during boom years private debt increases spectacularly.

The latest boom period of 2005-07 stands out with yearly additions to private debt amounting on average to 35 percentage points of GDP.

• During these boom periods, public debt growth drops to 1 to 2 percentage points of GDP. The opposite occurs during bust years. Private debt growth slows down and public debt growth accelerates.”

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