Speculative Attacks on the Drachma and the Changeover to the Euro

Abstract

This article examines speculative attacks against the Greek drachma from 1960 until the adoption of the euro in 2001. The analysis is preceded by a historical review. Subsequently, using monthly data on a plethora of economic, financial and political variables, a range of Limited Dependent Variable Models (both binomial and multinomial) is estimated. This methodology allows devaluations to be differentiated from speculative pressure which was successfully repelled. Findings suggest that, until the early 1990s, speculative attacks were largely related to domestic macroeconomic imbalances. However, the effort to fulfill the Maastricht criteria disciplined policies. Thereafter, disturbances were more related to contagion from international crises due to increasing international interdependence.

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