Greece’s Big 2019: Bad Loans, Elections, Political Infighting

FILE - German Chancellor Angela Merkel, center, speaks with Greek Prime Minister Alexis Tsipras, center left, and Bulgarian Prime Minister Boyko Borissov, center right, during a round table at an EU summit at the Europa building in Brussels on Friday, Feb. 23, 2018. (AP Photo/Geert Vanden Wijngaert)

ATHENS – Hoping for an economic recovery in an election year, one of the biggest problems Greece is likely to face in 2019 is how to keep banks from wobbling under the weight of a mountain of bad loans they are trying to collect or sell off.

That was the assessment from analysts who told Kathimerini the so-called Non-performing loans (NPLs) are an obstacle to a rebound, scaring off prospective investors at the same time the government wants more foreign businesses, apart from hardcore elements in the ruling Radical Left SYRIZA trying to stop them.

Prime Minister Alexis Tsipras said he’s brought a recovery from a more than 8 ½-year-long economic crisis without mentioning, if it happens, that it’s largely due to his reneging on anti-austerity promises and imposing more reforms he vowed to scrap.

Three international bailouts of 326 billion euros ($373.22 billion) ended on Aug. 20 but Greece hasn’t been able to the markets and is living off a 22-billion euro ($25.19 billion) left over from the third bailout, good enough to last only until June, 2020 but with elections coming up in 2019 and SYRIZA far behind the major opposition New Democracy Conservatives they unseated in 2015.

The major theme in Greece remains the solvency of the banking system,” Michael Hewson, Chief Market Analyst for CMC Markets in London, told the paper. “Until politicians are able to coalesce around a single formula to recapitalize the banking system and sort out the NPLs, the economy will continue to struggle,” he warned.

A big challenge for Greece in 2019 will be how to deal with banks,” added Gianluca Ziglio, Senior Fixed Income Analyst at Continuum Economics. “A cleanup of their balance sheets remains a key precondition for halting deleveraging, increasing bank lending and therefore support the economic recovery. However, doing so too abruptly could create dangerous capital shortfalls which must be avoided to avoid a collapse of the banking sector,” he said.

Athanasios Vamvakidis, Managing Director and head of European G10 foreign exchange strategy for BofA Merrill Lynch, said political warfare ahead of elections could create economic stagnation slowing needed reforms,  noting 2019 will bring local and European Parliament elections as well as for Prime Minister.

With three elections in Greece, it is very likely that no major reforms will take place and we could even see policy slippages, questioning the long-term recovery prospects. Greece has no time to waste in the post-program period. The recovery of the economy is extremely weak. It is actually the weakest recovery ever, following a crisis in an advanced economy. Only decisive progress in reforms that will attract investment can bring the Greek economy back to life,” he said

Greece can save 2019 by pushing elections forward, said Wolfango Piccoli, Co-president of Teneo Intelligence. “In the best-case scenario, the general elections will be brought forward to May so that the second half of the year would not necessarily be written off,” he said.

A likely election victory by New Democracy has the potential to attract investors’ interest, but the initial enthusiasm could evaporate quickly if the new government fails to pass some business-friendly measures in the first period in office. On this matter, the key concern is intra-ND tensions hampering the government’s action,” Piccoli warned.

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