Risks remain despite Greece bowing to creditors

By Willem Verhagen, Senior Economist at NN Investment Partners

Greece’s growth will continue to face some fierce headwinds. A heightened degree of political and social uncertainty on the back of events in recent months will probably linger for some time. Combined with an impaired banking system this is not conducive to a pick-up in business investment, also because Syriza is not perceived to be business friendly.

Meanwhile, consumer demand is also likely to suffer from low confidence, rising taxes, impaired access to credit and high and rising unemployment. To add insult to injury fiscal policy may need to be tightened to balance the primary budget.

Never before in EMU history has the possibility of an exit been so explicitly mentioned by key policymakers as a threat to enforce future compliance with the rules. We strongly believe that such compliance is absolutely essential for the long-term survival of the monetary union.

Still, we also believe that the burden and risk sharing part should not be forgotten either. After all, the latter is vital to prevent a fatal increase in populist and anti-EMU sentiment in those countries which have to make painful adjustments.

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