And that’s likely to make matters much worse for the region that shares the euro currency. A 2009 working paper from the International Monetary Fund found that short-term political instability “significantly reduces economic growth, both statistically and economically.” More from IMF’s Ari Aisen, the paper’s author:
By increasing uncertainty about the future, [political instability] may lead to less efficient resource allocation. Additionally, it may reduce research and development efforts by firms and governments, leading to slower technological progress. Violence, civil unrest, and strikes, can also interfere with the normal operation of firms and markets, reduce hours worked, and even lead to the destruction of some installed productive capacity. Thus, we hypothesize that higher political instability is associated with lower productivity growth. Finally, human capital accumulation may also be adversely affected by political instability because uncertainty about the future may induce people to invest less in education.