Do you pay attention to the recent developments in Greece? After taking over the office, the new government understood that the 2009 budget deficit estimations announced to the public before were not correct. Of course, everybody else learned this as well. It turned out that 2009 budget deficit would be 13 percent of the GNP.

In August the IMF published an assessment on Greece. The report foresaw that budget deficit would be only fifty percent of this level. Even under those circumstances, ratio of Greece's public debt to its GNP would be around 110 percent. The assessments made in the light of these data revealed in August showed that this ratio of public debt to national income could reach 140 percent in five years if no measures are taken. In the light of the latest data, this ratio is estimated to be higher. In addition to this Greece suffers from current account deficit: the ratio of the deficit to GNP is a double-digit figure for 2006-2008 period and is 14 percent for the last two years of the given period. Ratio of current account deficit is expected to be 11 percent in 2009.

The EU economy deals with a number of problems; it fails to coordinate fiscal policies of individual member states. Of course the 'contribution' of Greece is significant. The new government is about to face rough times. Promises made before the elections do not match with the current state of the public budget. What is more, this is not the problem of Greece alone. Greece capital has a share in many banks across Balkan countries. They are concerned that the current milieu in Greece might have an effect in those countries.

On the other hand, the state of affairs in Greece did not go unpunished. Risk perception for Greece bills rose significantly in the last two months. Of course I am not for the punishments on our neighbor at the other coast of the Aegean. But, let us sit down and think for a bit: A country has high public debt naturally reflecting yesterday's sins. So you can let go this bad legacy by tidying yourself up. However this is not the case for Greece. It appears that the government hides its budget from the public. And the conditions that are undisclosed are quite bitter. On the other hand, this country also gives high levels of current account deficits for years. What would you expect then?

If this was the case for a developing country, we would "expect a crisis sooner or later." There is no need to look far: Taking into account Turkey's dance with the crisis over the last two decades would be enough to find an answer to this question. In short, the penalty imposed on Greece proves quite innocent.

Why is that so? I guess the reason is obvious; Greece enjoys the advantage of being an EU member. But can they enjoy this forever? EU is, as expected, putting pressure on Greece to tidy its fiscal policy. The IMF report I mentioned is also full of that recommendation.

In academic terms, there is an interesting point. EU has disciplined monetary policy. However, the theory tells us that gradual increase in debts and risk as a result of loose fiscal policy, prevalent for years as in the case of Greece, eventually makes disciplined fiscal policy unsustainable. This issue come to our agenda in early 1980s with 'unpleasant monetarist arithmetic.'' In 1990s, studies indicated that fiscal policy is the main determinant of inflation in the presence of loose fiscal policy. Of course it cannot be expected that the debt of Greece will make EU's monetary policy unsustainable. It appears that in the presence of a single monetary policy and multiple fiscal policies, this turns out to be the case. We had better think on this.

This commentary was published in Radikal daily on 07.12.2009