Financial system of Greece as a determinant of economic well-being of the country

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Financial system of Greece as a determinant of economic well-being of the country

Rodionova T., Candidate of Economic Sciences, Associate Professor Polishchuk K.

The article reveals the peculiarities of functioning of the financial system of Greece. The article consists of an analysis of the relationship between the level of economic well-being of the country and the level of development of the financial system of the country. As a result of the analysis, indicators of financial development in Greece that have an impact on the country's economic prosperity have been identified.

Key words: financial system, economic well-being of the country, Greece, economy

financial system development greece

В статті розкриваються особливості функціонування фінансової системи Греції. Проводиться аналіз взаємного зв'язку між рівнем економічного добробуту країни та рівнем розвитку фінансової системи країни. В результаті проведеного аналізу були виявлені індикатори фінансового розвитку Греції які впливають на економічний добробут країни.

Ключові слова: фінансова система, економічний добробут країни, Греція, економіка

В статье раскрываются особенности функционирования финансовой системы Греции. Проводится анализ взаимной связи между уровнем экономического благосостояния страны и уровнем развития финансовой системы страны. В результате проведенного анализа были выявлены индикаторы финансового развития Греции, которые влияют на экономическое благосостояние страны.

Ключевые слова: финансовая система, экономическое благосостояние страны, Греция, экономика

Formulation of the problem. The financial system of the country is the main source for the development of the country and its economy. The level of development of financial system of the country has a great influence on its availability of financial resources and financial assets for systematic development. Greece, as a country that stands on the path of reconstruction and development, should be interested in building a reliable and stable financial system. The level of financial development of the country has a certain influence not only on the economy of the country as a whole, but also on the population itself. This is expressed through the level of purchasing power, the number of loans to the private sector, and the level of savings of the country's population. Determining the interdependence and influence of the level of the country's financial development on various factors that characterize the economic well-being of the population will help to determine the main directions in which the country should develop.

Analysis of recent research. The study of the stability of the financial system was carried out by such domestic scientists as G. Belenkaya, I. Lukyanenko, I. Belova, V. Andrushchenko, O. Vasilik, S. Borinets, О. Mozgovy, O. Rogach, S. Bukovynskiy, S. Shapovalova, Ya. Dyachenko, T. Efimenko, V. Zaychykova, Lomachynska І.А. Analysis of the interdependence of the country's financial development and the economic well-being of the population was studied by foreign scientists such as W. Beydzhhot, J. Schumpeter, J. Gurley, E. Shaw, R. Goldsmith, M. Miller, R. McKinon, R. Levin, N. Lojaz, T. Beck, P. Valikova, E. Khavrenek, R. Horvath. The topic of interdependence of financial and economic development has a large number of studies. It is viewed from different sides, there are different approaches to determining the influence of one factor on another. However, consideration of the impact of financial development on the economic well-being of the country within the framework of one country - Greece - remains unexplored. Thus, with the help of various approaches, singled out by scientists, and also with the use of various hypotheses, the influence of the level of financial development of Greece on the economic well-being of the country will be investigated.

The purpose of the article is to track the patterns, as well as the interrelationships that arise between the level of financial development of countries and the economic well-being of the population, as well as identify factors that contribute to or increase the level of financial development of the country.

Statement of the main material. The financial system is a complex mechanism that combines the finances of the state, the finances of enterprises and the finances of the population. The interconnection of economic and financial systems of each country determines the economic and financial well-being of the country's population. Consequently, the simultaneous and systematic development of these three elements of the financial system with the simultaneous improvement of the country's economic system and its components is the number one task for the country, whose financial and economic systems need serious reforms. An effective financial system is the basis for normally functioning economy. Flows of money, capital, securities - this is the "circulatory system" of the national economy [1].

Each country can be characterized by either financial or economic development. The identification of the dominant development vector is determined by modern, as well as historical economic and financial resources of the country.

The question of interdependence of economic and financial development is in place of interest of many scientists. Among them is Josef Schumpeter, who argued that the services provided by financial intermediaries are necessary for economic development, because they help to assess risks and provide access to financial resources to entrepreneurs in the early implementation of innovative ideas and the introduction of new products to the market. Also we can name J. Robinson. While doing their research, scientists have put forward various hypotheses of the interdependence of economic and financial development. The following can be mentioned as hypotheses of interdependence between economic and financial development of the country:

Hypothesis of active influence of financial institutions on the economy or the so- called hypothesis of a "financial proposal". According to this hypothesis, the influence of the financial sector on the development of the real economy is explained by the fact that through the more effective transformation of savings into investment, financial markets and institutions create the prerequisites for future economic growth. On the contrary, lack of access to financial resources impedes the creation of new growth points and does not contribute to sustainable economic development.

Hypothesis of passive behavior of the financial sector or the hypothesis of "financial demand". According to it, the financial system only serves the emerging needs of the economy in intermediary services, so the level of financial development as a whole depends on changes occurring in the real sector.

Finally, the hypothesis of a "bilateral causal relationship" is based on the fact that there is a mutual influence of the level of development of the financial sector and economic growth. In other words, the development of the financial system can contribute to economic growth, and economic development in turn contributes to the development of financial markets [2].

The choice of this or that type of interdependence between the economic and financial development of a country depends on various factors. An analysis of indicators of financial and economic development makes it possible to determine which type of interdependence is existing in a particular country.

For Greece, as a country in which only small and medium-sized businesses have historically developed, a characteristic feature is that the economic development of the country is conducive to financial development. This dependence can be tracked by analyzing a number of financial and economic indicators.

For the economy of the country it will be correct to consider the data in the context of two separate periods - 2005-2010 and 2010-2016. This is due to the fact that in 2010 the country faced a debt crisis, and this, in its turn, had an ambiguous impact, both on the economy and on the financial sector of Greece.

To measure the country's financial and economic development, indicators such as domestic credit to the private sector (as a percentage of GDP) and the volume of export- import transactions as indicators of the development of the real economy, as well as the ratio of net foreign direct investment to the country's GDP and total value of shares, traded as indicators of financial development.

For the indicator of domestic credit to the private sector, the following dynamics is typical: 2005-2010 there is a gradual increase in the amount of lending to the private sector, and in the period 2010-2016 - a slight gradual decline. However, if we consider these changes in quantitative terms, in the first period, the increase was 39 points, while the reduction in lending in the second period was 9.5 points, and since 2005 till 2016, lending has grown by 35 points. That is, the indicator of the share of lending to the private sector shows that for the period 2005-2010 Greece has only developed economically [3].

The second indicator, which was chosen to assess the development of the real sector of the economy - the trade balance of the country. According to the World Bank, throughout the analyzed period, the country's trade balance was negative, that is, the country's economy could not fully provide itself with the necessary goods and services, as evidenced by the negative balance of the country's trade balance. The only year that shows a positive trade balance is 2015. However, this can be more simply an exception than a signal for improvement. Negative value of the country's trade balance derives from the specifics of the country's economy, because Greece is a tourist country, therefore the sphere of services is the basis of its economy. Given the difficult situation in the country, and political tension, the tourist service also suffered from the crisis. A significant decline in export-import operations began in 2012, when the volume of trade declined by almost 80%. In 2012, the country has not yet emerged from the debt crisis, so during this period, the international economic and trade activity of Greece has largely declined [3].

Thus, the economic development of the country in the period 2005-2016 each indicator characterizes in different ways.

The financial development of the country will be characterized by the ratio of net foreign direct investment to the country's GDP, as well as the total value of shares traded on the market.

The first indicator characterizes the extent to which the country's economy is dependent on investment. In general, the value of this indicator for Greece is quite low, because in the entire period under review it does not even reach one percent. The dynamics of this indicator is wavy, and each year the positive and negative value of this indicator alternates. However, if we consider simply the balance of foreign direct investment in Greece, then basically this indicator has a positive value, so as a result the country can be identified as recipient of investments. This is quite logical in this situation, because when a country is in a debt crisis, there is a simultaneous reduction in investments from the country and investing in the country, because of the increased riskiness of such deposits. And also, taking into account the fact that the country uses all available funds in order to revive the economy and pay off the country's external debt, investment is not a priority.

The total value of shares traded on stock exchanges in Greece throughout the analyzed period, both increased and decreased. In the period 2005-2008 there was a gradual and rather rapid increase in the value of this indicator. However, since 2008, there has been a constant and large-scale reduction in the value of shares that are traded. In fact, Greece's stock market does not belong to one of the most developed in Europe, because, based on the structure of the economy, in Greece, small and medium-sized enterprises are mainly concentrated, and there are a small number of large companies. Therefore, the need for a developed stock exchange is not acute.

Thus, based on the results obtained during this analysis, we can conclude that in Greece, economic development prevails over financial development, and it is the economic development of the country that determines the financial development. Proceeding from the fact that the financial development of the country is inferior to the economic one, it is advisable to consider which factors are holding it back.

One of the main factors that constrains the financial development of the economy is that at the moment the country is at the post-crisis stage, when its economy is weak enough, and its financial decisions depend on international creditors. First of all, it should be noted that the financial and economic policies of the country at the moment are changing under the influence of demands from international creditors.

The process of financial liberalization in Greece is now one of the most necessary areas of the country's financial policy. Privatization of part of banking institutions is one of the points of reform of the financial system of the country, which should contribute to the financial liberalization of the country. However, given that the country's economy has just begun to recover, we need to be cautious about the openness of the financial sector of the economy, because excessive inflow of foreign capital can lead to a blurring of the country's economy.

Another factor that hinders the financial development of the country can be called a decline in the securities market. The importance of the stock exchange as a resource for obtaining additional funds is quite significant. However, Greece's low investment level and high risk make the stock exchanges of the country less attractive.

Among the factors contributing to the financial development of the country can be called a gradual recovery of the country's economy itself. Given the fact that the recovery of the Greek economy will help to increase its investment attractiveness, and thus, economic development can entail financial development.

For Greece, it is also important to analyze such an indicator as the level of savings of the population. Based on the foundations of economic theory, increasing the savings of the population entails a decrease in their expenditure. Also, this may be due to an increase in the general price level. However, for Greece, the first rule applies, in which the population's savings increase with a constant value of the wage level. According to economic theory, savings accumulated in one period restrain economic growth at this point in time, but they will stimulate economic development in the future, thus creating the conditions for financial development.

Analyzing the indicator of the general savings of Greece, the dynamics of this indicator can be divided into 2 parts. In the period 2006-2011 the value of this indicator decreases, and starting from 2012 the level of savings in the country begins to increase. As a result of this it can be said that the population of the country perceives the signals of the economy and understands that under these conditions, an increase in consumption is impossible, so it begins to save. For the country's economy, this process positive meaning, as the population accumulates funds that in the future in more stable financial and economic conditions will contribute to the economic development of the country.

Very important in the economy and the financial system of the country is the indicator such as loans from the IMF. This indicator appeared in the balance of payments of the country as an additional article in 2010. This year the country began to receive the first tranches of financial assistance. The dynamics of this indicator is considered for the period 2010-2016. Based on the data presented on the IMF website, this indicator was the most valuable in 2010, when it amounted to 13,735.3 million US dollars. In a year, this indicator decreased by $ 11,579.1 million, and starting from 2014, the article of loans from the IMF has a negative value. In theory, the negative value of this indicator should correspond to the return of a loan to Greece. However, in practice this is reflected in the annual debt cancellations for Greece, and thus the value of this indicator has a negative value [4].

The interrelation of the financial and economic development of Greece can be traced by analyzing the impact of certain indicators of financial development on the indicator of economic development. The final consumer spending (E) was selected as an indicator of economic development. To assess the impact of the country's financial development on the economic, the following indicators were selected:

-- GDP growth rate (GDP);

--domestic credits to the private sector (C);

--number of bank branches per 100,000 people (B);

--net lending/borrowing (L);

--gross domestic savings (S).

Thus, the equation of interdependence of the financial and economic development of Greece is as follows:

E = P1 * GDP + P2 * C + P3 * B + P4 * L + P5 * S (1)

Table 1. The results of estimating the regression model of final consumer spending in Greece in 2000-2015

Calculated by authors on the basis of data [3]

After analyzing, it was identified that all indicators have a certain influence on the economic development of the country [3]. Based on the obtained data, the following equation was composed:

E = 0,692*GDP - 0,080 *C + 1,204*B +0,052*L - 0,812*S (2)

The interdependence between the size of final consumer spending and the growth of GDP per capita is enough logical and has a positive value. That is, simultaneously with the increase in GDP per capita the consumer's propensity to spend also increases. This factor may be due to a decrease in the number of people, an increase in national production, or a simultaneous proportional change in both indicators. For Greece, the third option is more likely. This interdependence shows that the country's financial development stems from the level of economic development in Greece.

According to the data obtained from the analysis, the interdependence between the domestic credits to private sector and the level of final consumer spending in Greece is opposite. Thus, an increase in lending to the private sector should lead to a decrease in final consumer spending. In real economic conditions, increasing of lending to private sector should lead to an increase in final consumer spending, as funds at the disposal of the private sector increase. That's why we need to proceed with more deep analysis to explain this pattern.

The next indicator, characterizing the relationship between financial and economic development, is the number of bank branches per 100,000 people. Based on the data obtained as a result of the analysis, we can say that an increase in the number of bank branches leads to an increase in the value of final consumer spending. This interdependence characterizes the dependence of economic development on the financial one. That is, an increase in the number of bank branches contributes to an increase in the amount of credit that increases the purchasing power of consumers and thereby increases the indicator of final consumer spending. The increase in the ratio of these two indicators characterizes the financial development of the country.

The net lending/borrowing ratio has direct impact on the level of final consumer spending. Based on the fact that the indicator of net lending/borrowing during the analyzed period has a negative value [3], this means that the country is a consumer of loans. Thus, an increase in the credit burden leads to a decrease in purchasing power and a decrease in final consumer spending. This interdependence makes it possible to conclude that the country's financial development causes its economic development.

The last indicator is the total amount of savings, has a reverse effect on the indicator of final consumer spending, which is also a logical process. In a period when the population's savings are growing, so consumers consume less and save more. This helps to reduce the final consumption indicator, as the money supply in circulation decreases.

Summery

That is, in fact, we can say that the economic development of Greece determines the financial development. This makes it possible to conclude that Greece belongs to the group of countries that can be characterized by development of the "financial demand" type. It assumes that the financial development of the country is due to economic development, and economic development, in turn, serves as the basis and resource for the financial development of the country [2].

Proceeding from the fact that for Greece economic development is more characteristic, we can conclude that the hypothesis of "financial demand" characterizes the financial development of the country. However, taking into account the results of the analysis of the impact of financial development on the economic development of the country, it can also be concluded that the country is also characterized by the so-called "two-way causality" hypothesis, when economic development determines the financial and conversely [2].

As a conclusion it should be said that financial development is very important for Greece, because restoring the country's economy requires a large number of funds that are very often attracted from abroad, so the financial system must be strong enough. Liberalization of the financial system, increasing the monetization of the economy are factors that contribute to the financial development of the country. At this stage, in Greece these two factors are not determinative, but development in this direction will have a positive effect for both financial and economic development, which will contribute to the full development of the Greek economy.

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