The concern about the possibility of recession in the Eurozone is real and justified, according to the governor of Bank of Greece, Giannis Stournaras in an interview published in Phileleftheros of Cyprus.
As he says, “concern about the potential recession in the eurozone is real and justified, given the new negative supply-side disruption caused by the escalating conflict in Middle East. Rising energy prices and growing uncertainty are directly affecting growth and inflation, given the high energy dependence of the Eurozone.
Unlike in 2022, the rise in inflation is occurring in an environment of alreadyweaker growth, tighter financial conditions and reduced fiscal space, which limits policy space and makes economies more vulnerable. Although the euro area economy has shown resilience, its momentum remains subdued, with growth slowing from around 1.4% in 2025 to 0.9% in 2026,according to the ECB’s March forecasts.
The alternative scenarios worked out by the ECB highlight the predominance of downside risks to growth. At this stage, however, we are not in the adverse scenario, as the relative geopolitical de-escalation has contained the more extreme developments. However, in the event of a failure of negotiations and a resumption of hostilities, the risk of a recession remains possible, without being the baseline scenario.”
With regard to the impact that the current geopolitical uncertainty may have on both the cost of funding and the quality of banks’ loan portfolios, Mr. Stournaras estimated that we are likely to see an increase in the flow of new non-performing loans, especially coming from vulnerable households or from companies in sectors sensitive to changes in energy prices.
He even did not rule out in an unfavourable scenario, that there could be increased financing costs due to volatility in markets and a revision of banks’ business plans due to lower demand for new loans. However, he stressed that both Greek and Cypriot banks, as well as European banks, are entering this period of heightened uncertainty with strong fundamentals…
On the functioning of institutions in Greece, he argued that despite clear progress, strengthening citizens’ trust in the state requires faster and more effective administration of justice, stronger accountability, full implementation of transparency rules, and firmly addressing phenomena of corruption and administrative inefficiency.
