Financial instability in Greece began in 2009 when the interest rates on Greek sovereign bonds surged; and this can be graphed in a “price disequilibrium” model. To explain how this came about, we create a systems-dynamics model of the Greek fiscal system. Government fiscal systems are not a kind of a “causal” system, but instead a “structural-functional” system. This approach is in the spirit of the Keynes-Minsky model of a financial market as a “dynamic” of the value of capital assets. Financial bubbles occur from “perceptions”—cognitive “reflexivity” in Soros’ term—as expectations of the future values in a financial market. The Greek government fiscal crisis is a “Min- sky moment”, which occurs at a time when traders in a financial market have moved from speculative finance to the unstable reflexivity in Ponzi finance. The governments in Greece had indulged in the dynamics of a budget policy of “Ponzi finance”. Unsound fiscal policy over many years had accumulated a very large and increasing government debt—until bond market “reflexive cognition” triggered the Greek fiscal crisis in 2010. The “reflexive perception” of bond traders was that either the Greek government must “default” or be “bailed out”.
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