The Greek economy has come a long way in terms of adjustment and its economy seems poised to recover, notes a recent Bank of Greece publication.
A publication titled “The Chronicle of the Great Crisis: The Bank of Greece 2008-2013” aims at chronicling the activity of the bank in the period from 2008-2013, with a particular focus on its contribution towards addressing and overcoming the financial crisis.
Bank of Greece: Prelude to the crisis
Chronicling events since Greece joined the EU Economic and Monetary Union and adopted the single currency in 2001, the publication points out that Greece’s inclusion in the core of European economies was to act as a catalyst to accelerate its convergence with advanced European countries both economically and socially. However, these expectations didn’t materialize as the economy did not grow on the basis of a growth model that could ensure sustainable progress.
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The following chart captures the European policy uncertainty index:
Bank of Greece shows a preference for consumption over saving and investment
The publication highlights that Greek society showed a clear preference for consumption over saving and investment. The politicians were clearly wary of the political costs and hesitated to undertake decisive reform initiatives. Moreover, the country enjoyed the benefits of the single currency, but didn’t try to meet the obligations arising from its adoption.
Though economic growth was relatively strong, unfortunately the growth was led by domestic demand, which was fueled by borrowing, both public and private. The following graph elucidates the crisis timeline since 2010:
Protecting financial stability
The publication highlights that in Greece, the global financial crisis of 2007-2008 soon evolved into a sovereign debt crisis. This forced the Greek government to request financial support in April 2010 from the euro area countries and the IMF. The following graph sets forth Greek bank’s recourse to Eurosystem monetary policy operations and ELA:
The publication notes the Bank of Greece performed its institutional functions with the primary aim of protecting financial stability and bank deposits. Thus a banking crisis was prevented, and by end-2013, bank recapitalization was well under way. Today, the structure of the Greek banking sector is entirely different from the one at the beginning of the crisis.
The following chart highlights the evolution of Greek banking system since 2008:
The publication points out that 2013 was milestone, marking the completion of major changes and a halt to the deep recession. The publication, however, notes the economy’s adjustment was not completed in 2013, as it has to continue in order to consolidate what has been achieved so far and create the conditions for growth, lower unemployment and enhanced incomes.
Striking a positive note, the Bank of Greece publication notes today one can look forward to the future with greater confidence, as Greece anticipates that the economy will recover, and if macroeconomic conditions remain supportive, will enter into a new, virtuous circle of growth.