A snapshot of the "good old days" in Greece

Here’s a snapshot of the good old days in Greece and how conditions in business and banking were back then.

source: Bank of Greece, own calculations

In numerous posts I’ve been blubbing about the severe shortfall of fixed capital investment in Greece. Besides regulatory, political, monetary policy and all other kinds of reasons you can think of add this one right here to that list. The crowding out of the private sector from the Greek public sector. 

As you can see in the chart above, from March 1998 up until Greece’s ascension in the EMU, loans to the private sector roughly matched Greek government bonds holdings as a % of total banking assets. This is as textbook a case of crowding out as it gets…

This chart has major implications for the future as well. If Greece finds itself locked out of international capital markets (something that already has materialized save for bail-out funds) could this be how banks’ balance sheets would look? Well, not necessarily, it depends on a multitude of factors, say for example ownership of the banks among others…

P.S. To be fair here I don’t know what the picture was the previous years but I can’t see many reasons to make me believe things were different…