Greece’s, Spain’s, and Portugal’s financial system before and after the EU imposed bailouts : a comparative study

Abstract

Purpose This research sets out to compare how Greece, Portugal and Spain were performing before and after the EU imposed bailout. What circumstances led for the bailout to happen and how these countries are holding after the bailout agreement has been placed into effect. The study explores whether the bailout was sufficient enough for each country’s financial system to recover and whether the particular country will be able to cope without external financial help being given by other euro zone countries or from the International Monetary Fund (IMF). Methodology This research study compared the financial performance of Greece, Spain and Portugal in terms of Gross Domestic Product (GDP), unemployment rate, debt to GDP ratio, Stock Market Index (SMI), Government Bond Yield, Capital Adequacy Ratio (CAR) and nonperforming loans to total gross loans (NPL), before and after their respective bailouts. This research is an empirical, non-experimental, comparative and retrospective study. Data was collected through a document analysis and was analysed using both descriptive and inferential statistics. Findings The main findings with regards to the regression analysis are that for all the three countries, GDP and debt have a negative relationship. In turn GDP and SMI have a positive relationship. 10-year government bond yield and GDP also have a positive relationship and GDP and non-performing loans to total gross loans have a negative relationship. Lastly GDP and CAR showed different relationships for different countries meaning that each country’s GDP is differently affected by a change in CAR. Conclusions Spain and Portugal, following the bailout agreement have managed to strengthen their economy and recover substantially from their previous low point of their economy. However, with regards to Greece, its financial system is still struggling and may continue to struggle unless Greece, together with the EU manages to find a quick and adequate solution to solve its financial problems.