PROSPECTS FOR HOUSEHOLD BORROWING IN GREECE AND THEIR IMPORTANCE FOR GROWTH

Abstract

The paper analyses the evolution of household borrowing in Greece, in an attempt to examine its importance for growth. The analysis suggests that the need to maintain household debt at sustainable levels is likely to 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, a possible drop will cause a considerable weakening of the injection that 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 regard to the future prospects of domestic demand growth.

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