Recession in Greece is
projected to close to -1.5% for the year 2015, according to the Institute for
Economic and Industrial Research. The Institute has warmed that recession may
be prolonged if the right changes in the economy do not get implemented, so
that investments can start to roll in the country.
The Greek economy has the
last chance to adjust itself according to the last memorandum signed, and
signed to implement. If changes do not come about quickly in the areas of
taxation, pension insurance, recapitalization of banks (including bad loans),
and the newly created privatization fund of public properties, then investments
will not take place, so desperately needed.
As for 2016 the future
cannot be predicted with safety. Recession may continue to persist, as the
Greek economy is faced with distortions that is making it react very slowly to
economic changes. Unemployment will continue to remain high at 28%, and with
this, insurance funds face liquidity problems, distribution of pensions, and
overall sustainability of the system.
Meanwhile the
recapitalization of the four systemic Greek banks has begun. The goal is to
find capital to cover 3.6 billion euros, so as to limit the amount of increase
in share capital needed. For example, for one bank its target is to have
shareholders contribute 600 million euros in the increase in share capital, or
sell shares at lower than par value. In both instances the bank’s capital is
enhanced, thereby reducing the amount of capital needed. The stress tests are expected to be announced
by the end of October.
Capital controls remain
in place as they were imposed in the summer (2015). There is a lack of
liquidity in the Greek market, and the most effected are small and medium
businesses, especially those that import raw materials. Some rules have been
eased, like sending money abroad.
