Greece’s non-performing exposure ratio is the second highest in Europe, largely linked to the unprecedented contraction of domestic economic activity in recent years. Causality is known to go both ways, with persistently high non-performing loans (NPLs) constituting a drag on credit and GDP growth. Theoretically, Greek governments keen to reduce the debt overhang and restore the productive pillars of the economy should have created the conditions for a rapid and effective workout of NPLs. The country’s third bailout programme has provided a road map for reform, with the Institutions bent on facilitating or enforcing ownership. Conditionality, anchored on a ‘reforms for cash’ logic, has reduced perceived or real margins for noncompliance.
In fact, NPLs resolution has remained a work in progress. Weak cyclical conditions tell part of the story. Democratic politics have collided with reform ownership. Electoral and non-electoral pressures, multiple veto points, and private sector resistance have undermined majority-backed rules and regulations. The current, fully liberalised framework, has come about under conditions of severe stress- a heavy debt repayment schedule and the country’s dependence on bailout programme funds.
The Institutions have upped their game: outcomes-based conditionality has been central to boost and reinforce political ‘will’. In some cases, ownership has altogether been removed from government hands. Greek recalcitrance and the paradoxes of inaction, procrastination or limited response in the face of a glaringly unsustainable equilibrium cannot be discounted. The strongly directive elements of an externally-dictated process, however, raise questions about the political tradeoffs between prompt implementation, accountability, and the legitimacy of the Institutions’ design.
To enhance the framework’s credibility, scope, and effectiveness the main stakeholders, regulators, elected politicians, bankers, and investors, will have to flesh it out and create the right incentives for engagement. After six years of seeking to build ‘ownership’, the Institutions have yet to link capacity with the broader institutional context, including the integrity of the legal and judicial process, the independence of regulatory agencies, and the transparency of business-government relations. They have also yet to own up to their role in the self-reinforcing negative loop of recession, deterioration of credit quality, NPLs creation.
Dr Eleni Panagiotarea is a Research Fellow at the Hellenic Foundation for European and Foreign Policy (ELIAMEP) and the author of ‘Greece in the Euro: Economic Delinquency or System Failure?’ (ECPR Press). Panagiotarea is also working in the financial sector as a senior economist, having previously held advisory positions in the Ministries of Finance and Foreign Affairs in Greece. The focus of her analysis and research is the euro area, with particular emphasis on eurozone governance, financial and debt crises, questions of democratic legitimacy, and Greece’s political economy. She regularly consults institutional investors and political risk companies on macroeconomic developments in the EU and in Greece. Panagiotarea has commented extensively on the Greek debt crisis in major media outlets, including Bloomberg, BBC World, and Al-Jazeera English. She holds a D.Phil from the University of Oxford on EMU and national economic policy and is an Alexander S. Onassis Public Benefit Foundation Scholar.
|Speaker||:||Dr Eleni Panagiotarea
Research Fellow at the Hellenic Foundation for European and Foreign Policy (ELIAMEP)
|Chair||:||Dr Spyros Economides
Hellenic Observatory Director; Associate Professor, International Relations and European Politics, LSE
Cañada Blanch Room, COW 1.11, 1st floor, Cowdray House,
European Institute, LSE