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There are two dangers lurking in the global trend of rising interest rates: one is that it will halt the post-Covid economic recovery (this worries European Central Bank Director Christine Lagarde, as the recovery in the euro zone is still weak), and the other that it will cause great damage to heavily indebted countries, companies and individuals. Greece could be affected by both.

There is also a third, more specific risk for our country: its solvency which, after three bailouts, remains in the “junk” category. If that doesn’t change, if the rating doesn’t go up two notches to the investment level, the cost of servicing our debt will go up several times. It’s a great danger – one that many have been aware of over the past 10 years – that could cast a heavy shadow over Greece. These are not just theories and not just distant scenarios. One of the first to feel the risk of an uncontrollable rise in the cost of credit is a strategic link in the economy: the banks.

Over the next four years, by 2026, it is estimated that banks will need to raise €14 billion in the markets to continue meeting their minimum requirements for capital and eligible liabilities (MREL). In the face of rising interest rates, this alone would be enough to call into question some imaginative profitability scenarios that are circulating.

The situation seems more complicated if we take into account certain invisible consequences of the Hercules system for reducing bad debts. In order to meet the requirements of the plan, the banks “burned” capital. Thus, their capital adequacy has fallen significantly compared to the European average and, at the end of 2022, at the end of the supervision period, we will see whether further capital increases are necessary or not.

Neither the banks, nor the big companies, nor the State, nor the employees will be spared by the increase in the cost of borrowing. Achieving investment quality is urgent. The alarm should have been triggered. However, the opposite is happening.

Fiscal policy appears to be moving in the direction of the protracted pre-election phase. So, instead of exercising fair tax management, the ENFIA property tax (in a sense, one of the fairest taxes) has been drastically reduced for everyone – both for those who own small properties and for those who own a lot of real estate – at a cost of 350 million euros for the state coffers, instead of the 70 million euros entered in the 2022 budget.

And instead of exercising prudent budgetary management, the government has decided to give 6 of the 8.3 billion euros initially distributed in the form of repayable advances during the pandemic to support businesses, while the possibility of generosity even greater is envisaged – cut or write off the remaining 3 billion euros in total.

In short, government decisions that serve political patronage send messages to foreign and domestic observers that undermine the key national objective. To the outside world they tell them to be skeptical of Greece’s solvency, because it is a country which, despite owing 200% of its GDP – more than 350 billion euros – does not hesitate to take advantage of the relaxation of European rules to borrow even more for pre-election documents.

In Greece, the message is that they can relax, because there is money, and above all, there is a government that manages the crisis by handing out money – not like the others, once, who imposed taxes. And while there is strong belief today that supposedly, if it wants to, the government could handle the tsunami of price increases at no cost to us, it would be unfair not to recognize the government’s contribution to this belief.

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