No. 84A. PROSPECTS OF HOUSEHOLD BORROWING IN GREECE AND THEIR IMPORTANCE FOR GROWTH

Published in DISCUSSION PAPERS

E. Athanassiou, 2006. (Also in Greek.)

 

The present paper analyses the evolution of household borrowing in Greece, in an attempt to shed some light upon its future prospects and their importance for growth. The discussion presented suggests that the margins for further credit expansion to Greek households, at the pace observed in the last few years, are narrowing down. In future years, the need to maintain household debt at sustainable levels will eventually induce a drop in the rate of growth of household debt to substantially lower levels. As implied by a simple model developed in the paper, this drop will cause a considerable weakening of the injection that the increase in household debt contributes to the internal demand for consumption and housing. Taking into account the restrictions Greece is faced with in the area of public spending, the possibility of such a weakening is argued to justify concerns with regards to the prospects for domestic demand growth in the foreseeable future. Notably, the main conclusions of the paper appear to be supported by the experience of certain European countries that preceded Greece with respect to the liberalisation of their financial systems (Finland, Norway, Sweden and the UK).

 

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