Greece lagging behind in Europe in terms of savings

Greece lagging behind in Europe in terms of savings | TheGreekDeal.com

Yiannis Stournaras

The deficit of savings in relation to investment, reflects the structural weaknesses of the Greek production model and the country's high dependence on external financing, Yannis Stournaras said in a speech at an event organised by Eurobank and the Athens University of Economics and Business.

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27/05/24 • 19:57

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Yiannis Stournaras, Governor, Bank of Greece

The so-called "savings gap," or, in other words, the deficit of savings in relation to investment, reflects the structural weaknesses of the Greek production model and the country's high dependence on external financing, Yannis Stournaras said in a speech at an event organised by Eurobank and the Athens University of Economics and Business.

As he explained, throughout the last 25 years, the level of savings as a percentage of GDP in Greece has been among the lowest in the euro area.

High public sector deficits in the past have significantly burdened national savings rates.
On the private sector side, the household savings rate has fallen to negative levels since 2011 and shows the largest and even widening gap compared to the euro area average (lower by about 10 percentage points of GDP).
Although business savings have declined in 2023 (10.3% of GDP) compared to 2022 (12.6% of GDP), they remain at higher levels compared to the average for the three-year period 2017–2019 (8.3% of GDP).

The savings deficit, or more specifically, the insufficiency of domestic savings to finance investment, leads to recourse to external borrowing and is reflected in the persistently high current account deficits over the last 20 years. This suggests that the country spends far more than it generates, or, in other words, that there are insufficient domestic savings to finance investment.

Yannis Stournaras listed the policy options and concluded by pointing out that "even if they are all implemented together with maximum efficiency and determination, household savings are expected to recover gradually.".

"But given that Greece is an open economy, it has the capacity to finance the savings-investment gap, including through capital inflows through portfolio investment and foreign direct investment. To the extent that domestic assets in tangible and intangible capital (e.g., private enterprises, public property, etc.) represent attractive investment opportunities and offer good returns, the financing of the economy will continue unhindered."