and product markets also contributed to this
deflationary environment.
In regard to the prospects of the Greek economy,
the latest available data point to positive GDP
growth in 2015, which is expected to pick up in
2016. “The main elements of uncertainty weigh-
ing on the prospects for economic activity in the
medium term refer to our ability to fulfil the transi-
tional agreement struck with our partners, a pos-
sible deterioration in public finances and reform
fatigue. If these uncertainties can be contained,”
says the Bank of Greece, “then the economy can
and should continue to recover in 2015.” More
specifically, the exports of goods and services, as
well as private consumption, are expected to
boost the economy, along with the increase in
business investment. The further improvement of
structural competitiveness, and possibly of cost
competitiveness, is expected to have a positive
impact, combined, on one hand with the restora-
tion of the Greek businesses’ proper access to
financing and, on the other hand, the improve-
ment of the business climate. The development of
disposable incomes, the decline in the general
level of prices, and reduced uncertainty are
expected to have a positive effect on consumer
spending during 2015. Therefore, the Bank of
Greece estimates that private consumption will
“increase in the year as a whole, supported by the
fall in oil prices and the ensuing strengthening of
Greek households’ real disposable income.”
At the same time, the banking system’s capacity
to finance the real economy does not depend on
capital adequacy alone, but also on its liquidity.
The recent rights issues provided Greek banks
with a sufficient capital base, “but their liquidity
has come under considerable strain, especially in
the last few months.” Deposit balances remain
much lower than their pre-crisis levels, while the
banks still have no access to money markets,
except for small amounts of high-cost borrowing.
After the recent decision of the Eurosystem to
exclude securities issued or guaranteed by the
Greek government from the list of collateral
acceptable for open market operations, the value
of eligible securities held in Greek bank portfolios
has diminished. The banks can still draw liquidity
through the emergency liquidity assistance (ELA)
mechanism of the Bank of Greece, but this entails,
Trade with Greece
40
”
“
The banking system’s
capacity to finance the
real economy does not
depend on capital
adequacy alone, but also
on its liquidity.
