They say markets are, above all, a matter of psychology — and that is precisely where a new study by the European Central Bank (ECB) focuses its attention.
Prompted by a sharp deterioration in economic sentiment across the eurozone, ECB economists examined the effects of geopolitical risks on consumer expectations. Their findings shed light on a mechanism that is particularly familiar to Greek consumers: households that have lived through repeated economic crises react to each new shock with disproportionate intensity, even when the actual economic indicators do not justify such a reaction.
This phenomenon, which researchers call the “double scar” effect, has become the defining condition under which European households are now processing the war in Iran and its knock-on effects on energy prices.
Similarities and Differences with 2022
The study, published on the ECB’s blog, compared consumer reactions to Russia’s invasion of Ukraine in 2022 with their reaction to the conflict in the Middle East, which began with the US-Israel strike on Iran on February 28 of this year.
In March 2026, one month after hostilities commenced, average inflation expectations for the following twelve months were revised upward by 2.5 percentage points, while growth expectations fell by 1.2 percentage points. The simultaneous worsening in both directions — higher prices and lower growth — is, by definition, stagflation.
The overall shift toward stagflation scenarios is, according to the data, somewhat less pronounced than it was in 2022. The critical difference, however, is that this time the starting point is worse — meaning the baseline level of anxiety is already higher. Even before the Iran war broke out, medium-term consumer inflation expectations were already elevated compared to January 2022, before the Ukraine invasion. The new shock found the ground already prepared.
Memory as an Economic Factor
The ECB report zeroes in on a factor that resists easy measurement: memory. In January 2023, when eurozone inflation was running at 8.6%, nearly half of all households reported closely tracking price changes. By August 2025, even with inflation having returned close to the ECB’s target, that share had only eased to 41% — still remarkably high for a period of supposed normality.
When the Iran war erupted, it climbed back to 50%. The researchers interpret this as evidence that the inflationary crisis left a permanent imprint, with consumers monitoring prices with heightened sensitivity even when the reality around them does not call for particular alarm.
Geopolitical Anxiety
The second key finding concerns geopolitical anxiety. In May 2022, 35% of respondents reported high concern about the war’s impact on their personal finances. By December 2025, just before the new conflict broke out, that figure was still sitting at 25% — a level that suggests the sense of threat never fully dissipated in the intervening years. The “double scar” reflects precisely this combination of two overlapping experiences that mutually reinforce households’ wariness toward each new shock.
Why Are Greek Consumers Europe’s Most Pessimistic?
If these findings describe a general European problem, for Greece they amount to a precise portrait of a chronic condition. According to the ECB’s latest Consumer Expectations Survey, in March 2026 the median perceived inflation rate among Greek households for the previous twelve months stood at 10.1%, compared to 3.5% for the eurozone as a whole — the largest gap between a single country and the overall average in the entire survey.
The distance from official inflation figures is equally striking. The Harmonized Index of Consumer Prices in March showed an annual increase of 3.4%, meaning the “lived inflation” experienced by Greek households was running at nearly three times the official rate. Even more revealing are expectations: Greek consumers anticipated 10% inflation for the coming twelve months in March, up from 5.2% in February — before the Iran war — while the Bank of Greece projects 3.1% inflation for 2026.
This gap has structural roots. Greek households needed 17 years for their nominal disposable income to return to 2008 levels, without ever having recovered those losses in real terms. The country ranks second-to-last in the EU by real per capita income in purchasing power standards, marginally ahead of Bulgaria, with income equivalent to roughly two-thirds of the European average. In this context, every new price increase hits disproportionately hard, because household purchasing power remains fundamentally fragile.
ECB Credibility as a Buffer
The ECB study notes that trust in the central bank functions as a buffer against the deterioration of expectations. Households that trust the ECB revised their inflation expectations far less sharply than those with lower confidence, the research argues. One positive sign, the authors note, is that trust in the ECB in February 2026 was higher than in February 2022 — a development attributed to the institution’s successful management of the previous inflationary episode.
Yet when the structural conditions of a country create a pervasive sense of economic vulnerability, trust tends to evaporate. In Greece, the combination of low wages, high housing costs, and the weakest purchasing power in the eurozone generates conditions of permanent uncertainty — for the majority of households that barely make it through each month. For Greek consumers, “perceived inflation” reflects the accumulated weight of fifteen years of compressed incomes, which makes every new geopolitical shock feel like a direct threat to the basics.
