Big Banks Bad Loans Dragging Down Greek Recovery

FILE - In this file photo dated Friday, June 22, 2018, people walk past the Bank of Greece headquarters as workers repair the facade of the building in central Athens. (AP Photo/Petros Giannakouris, FILE)

While Prime Minister and Radical Left SYRIZA leader Alexis Tsipras said he’s bringing recovery from an 8 ½-year long economic crisis – without mentioning it was spurred by austerity measures he had previously rejected – the comeback is being held back by a mountain of bad loans, especially those held by the country’s four biggest banks.

Despite the end of three international bailouts of 326 billion euros ($371.73 billion) in August, 2018, Greece still hasn’t been able to return to the markets and is living off a 22-billion euro ($25.09 billion) cash buffer.

That was taken from a third rescue package in the summer of 2015 for 86 billion euros ($98.06 billion) he sought and accepted after saying he would do neither as it came with brutal conditions he put on workers, pensioners and the poor after saying he wouldn’t.

The buffer is only good enough to get Greece through mid-2020 when he might not be around as polls show he and his party set to take a beating in elections in this year from the major rival New Democracy Conservatives they unseated four years ago.

European Commission Vice President Valdis Dombrovskis, in an interview with the Athens-Macedonia News Agency (ANA-MPA) said the bad loans are the “vulnerability of the Greek banking system,” as they make up some 40 percent of their portfolios.

That has limited the ability to lend although the government, reneging on another promise, is letting vulture collectors and outside agencies hound people who can’t pay because of big wage cuts, hiked taxes, slashed pensions and worker firings.

But New Democracy and its former coalition partner, the now-defunct PASOK Socialists who vanished after breaking their alleged principles to back austerity so they could get into power owe 250 million euros ($285.07 million) in bad loans and the loan officers who approved them without enough collateral were given immunity from prosecution.

Dombrovskis noted Greece has imposed austerity and reforms and met its target for 2018 but said that after being excluded from the markets and still having the highest debt-to-GDP ratio in Europe there is not much room for “maneuvers” or “mistakes.”

“Things seem to be broadly on track on the fiscal side. Greece has met its target in 2018 and the budget is prepared in a way which will allow to meet also the primary surplus target foreseen of GDP this year,” Dombrovskis, who is responsible for the euro and financial stability, said.

The bad loans, Dombrovskis said, call for “systemic structural solution” to cut them down but also to find the “right balance between protecting the vulnerable borrowers but at the same time avoiding moral hazard and avoiding incentives for strategic defaulting.”

On Greece’s planned return to the international markets, Dombrovskis warned that with “by far the largest debt-to-GDP ratio, more than 180 percent, there is not much room for manoeuvre and there is not much room for mistakes.”

“That’s why I emphasize the need for Greece to stay on the agreed course as regards both fiscal targets and the structural reform agenda. This is the factor that provides confidence in the Greek economy and will allow the country to successfully return to the markets. Which then allows to clearly say that Greece stands on its own feet,” he said.

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