The cost of political uncertainty

Eurobank study says that Greek governments’ lack of credibility has kept country in state of stagnation

Political uncertainty and what appears to be the perennial confrontation between Athens and the country’s international creditors are the main reasons Greece has been unable to exit its protracted financial crisis, according to a study published by Eurobank.

The study, titled “The Cost of Uncertainty,” highlights the important role credibility plays in the implementation of economic policy, and this, the study says, is not something Greece has enjoyed in recent years.

International markets, citizens and the country’s productive forces, the study contends, have shown “limited” confidence in the commitment of successive governments and several officials to implement the reforms required to lead Greece out of its crisis and back to normality and financial stability. Thus, despite the social and economic toll austerity has taken, Greece remains stagnant and is still being sustained by bailouts.

The study notes, moreover, that the drachma “game” played by members of the Greek political system and certain European bodies, as well as the “traumatic” first half of 2015, when Greece was on the brink of leaving the eurozone, further eroded confidence in the economy and placed the country in grave danger.

However, the study said that after the conclusion of the second review of the country’s third bailout this summer, it appears that, for the first time since 2014, global markets and Greek citizens are gradually gaining more confidence in Greece’s growth prospects and the possibility of a final exit from the crisis. The recent return to markets is evidence of this improvement, but, the study warned, “the country is still far from basing its economy on its ability to issue debt at a competitive, low cost.”

“It is crucial for the future of the country to bridge, in a timely and decisive manner, the gap in reliability and confidence that continues to exist with global markets – compared with other European partners – with the appropriate policies, in order to continue the process of normalizing the economic life of the country at a lower cost and with greater benefits,” Eurobank said. In order for this to occur, it said, the government must implement what it has agreed with the creditors and enforce, without delay, a national program of reforms aimed at reviving Greece’s productive forces.