Greece’s Difficulties are Exaggerated

To the Editor:

Re: “On the Grecovery, EU Banks, and Market Prospects” (Nov. 9).

John Charalambakis would not be so pessimistic about the prospects of the Greek economy if he had his facts right.

The high level of impaired loans in the Greek banking sector is not news. What is new is that impairments have been declining over the past year, indicating improving financial conditions. Moreover, Greek banks have provisioned for these impaired loans, and their capital ratios therefore already reflect potential losses from this source. It is thus simply wrong, and alarmist, to suggest that impaired loans may cause the confiscation of “at least 20%” of deposits in order to capitalize the banks.

The Greek bailouts, Dr. Charalambakis writes, “increased rather than decreased the Greek debt, both nominally as well as a percentage of GDP.” In fact, the March 2012 PSI (private sector involvement) transaction alone involved the exchange of €196 billion of outstanding Greek debt for new debt of €91 billion – a debt reduction of €105 billion in nominal terms, or some 55% of Greek GDP. Lower loan rates and other favorable conditions enhanced the debt relief further. Taking these conditions into account, Greece’s real debt burden is considerably lower than the country’s debt/GDP ratio may suggest.

Dr. Charalambakis interprets the increase in the Greek government borrowing in the second quarter of this year as evidence of a deteriorating fiscal situation. In fact, that increase constituted planned borrowing to help recapitalize Greek banks. The higher borrowing was therefore offset by higher government assets in the form of government equity in Greek banks: it did not imply a worsening fiscal condition. Greece’s fiscal condition has been improving steadily since 2009, and the country is expected to record a primary surplus this year. By comparison, the United States is expected to have a primary deficit of nearly 4%.

Greece has enough real economic problems. It serves no useful purpose to exaggerate them or compound them with fictitious ones.

Basil Zafiriou