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Financing economic growth in Greece: lessons from the crisis

Helen Louri () and Petros Migiakis ()

No 262, Working Papers from Bank of Greece

Abstract: 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; NPLs. (search for similar items in EconPapers)
JEL-codes: E22 E44 G01 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fdg and nep-mac
Date: 2019-06
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