ECONOMIC GROWTH IN GREECE: LESSONS FROM THE CRISIS
Athens University of Economics and Business
Bank of Greece
We examine the existence of a feedback loop between the resilience of the
financial sector and Greek economic activity. A sequence of structural VARs is
employed using data for bank credit, liquidity, capital, asset quality and
private demand in 2001-2018 in two data sets. One in monthly frequency with
which we examine the determinants of credit provision by Greek banks, and
another in quarterly frequency with which we examine the finance-growth nexus
for the Greek economy. We find that (a) the deterioration in the quality of
Greek banks’ balance sheets affected negatively the provision of credit to the
economy, (b) central bank liquidity and recapitalizations of Greek banks
provided only a partial remedy and (c) the decline in credit significantly weakened
economic activity. Also, we find that there is a role for market financing of
the economy but this cannot substitute for the predominantly bank-based financing.
Therefore, as the Greek economy starts bouncing back Greek banks have an
important role to play, first by solving the high NPLs problem and providing
the necessary credit and second by improving the efficiency of capital
allocation towards a sustainable growth model.
Keywords: Greek crisis; credit provision; finance-growth nexus; financial stability;
JEL-classifications: E22; E44; G01; G21.
wish to thank participants at the “Greece and the Euro: From Crisis to
Recovery” conference (Tufts University, Boston, April 2019), as well as Heather
Gibson and Hiona Balfoussia for their insightful comments and suggestions. Helen
Louri gratefully acknowledges research support from the Research Centre of the
Athens University of Economics and Business. The views expressed are our own
and not necessarily shared by the institutions we are affiliated with. Any
errors remain our responsibility.
Economic Analysis and Research
Bank of Greece
21 El. Venizelos Av.,
10250 Athens, Greece