Double-edged sword

The decision by the Bank of Greece to lift the ceiling on consumer credit has been due for a long time and it is a move that is mandated by the broader policies of the European Union. This fact, however, does not change its potential impact on the everyday life of millions of citizens and on the course of the national economy. The immediate effect on Greek consumers will unquestionably be a positive one. Lifting limitations on the size and the repayment period of consumer loans will relieve many households, offering them more time to pay off their loans as well as enhancing their purchasing power. In turn, the expected consumption boom will be a tonic for economic growth. Greece, like many European countries, has seen its growth rate stall, and faces the specter of protracted lean years. However, as the economy has often witnessed in the past, taking too much of a medicine can have a deleterious effect – even more so in a country with strong signs of irresponsible consumer behavior like Greece. Consumers must be aware that the changes in the terms of consumer credit heralded in yesterday’s decision will not reduce their borrowing obligations – they will only postpone them. This means that if that extra little leverage is used to extend an unsustainable way of life or, even worse, to taking out new loans that are not really essential, they run the risk of being caught up in a vicious circle whereby they will have to get one loan in order to pay off another. This is nothing but an individual microcosm of the slide to bankruptcy experienced by many developing countries – a fate that could await even economic powerhouses like the United States, where the overindebtedness of households and firms has reached an alarming level. Whether the scales will tilt toward the gains or the perils will depend on two factors: firstly, on the accuracy of the information reaching the consumers and the maturity of their own behavior, and secondly, on the overall growth of the Greek economy after the stimulus provided by the Olympic projects and EU funds has run out. The Bank of Greece’s decision has delineated a new battlefield where our weaknesses – those of consumers, financial agents and governing circles – will come into conflict. But it’s no magic recipe, simply because there isn’t one.

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