Importantly, inflation fell from about 11 per cent in 1994 to under 5 per cent at the end of 1997 while, in the first three years of the policy, real growth almost tripled compared with the rate of 1991-94. Yet, as is typically the case with all nominal-anchor exchange-rate pegs, this regime produced difficulties.
As predicted under the thesis of the Impossible Trinity, the ability to conduct an independent monetary policy under an exchange-rate peg and open capital account became increasingly demanding. The wide interest-rate differentials in favour of drachma-denominated financial instruments led to a capital-inflows problem.