Reforming the Greek financial system: a decade of failure

In this paper an attempt is made to describe the political economy of financial reforms in Greece. After a decade of deep crisis, Greek banks still suffer from the highest Non-Performing Loans (NPLs) ratio in the Eurozone, which occurred because of macroeconomic and bankspecific factors. However, due to the emphasis of policy makers on the macroeconomic determinants of NPLs and the contradicted incentives of the main stakeholders (bankers, politicians, regulators and investors), the need to improve the internal NPL management skills and the corporate governance of banks, both of which were poor, was neglected. As a result, the lost opportunity to restructure the Greek financial system aggravated the macroeconomic conditions for lack of a counter-cyclical lending policy.