Greek banks: Dance of the dead

This article details a merger between the second and third largest banks in Greece, Eurobank EFG and Alphabank, which will create the largest bank in the country. This merger is said to be beneficial for two reasons. The first is the lowering of administrative costs, potentially increasing profitability. Second, the merger would allow the banks to merge their capital and secure more investments, including an already promised investment from Qatar. With more large-scale investment, the hope would be that personal saving would increase, encouraging a greater of quantity of loanable funds to be demanded by businesses, improving economic growth.

Unfortunately, these hopes are overly optimistic, and it appears that the merger will have little effect in reversing the falling economy. With increased numbers of bad loans from Greek banks, deposits have been leaving the country. As the economic downturn affects households, marginal propensity to consume in order to make ends meet, while savings has dwindled. The risk of default is a very real concern for Greece, and this bank merger will do little to avoid this outcome.