Greece Battles Troika Over Banks Bailout

ATHENS – Even as Greek Prime Minister Antonis Samaras said the economy has a primary surplus and will begin to recover this year, the country’s international lenders have questioned whether the banks will need a bigger bailout too.

The Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) said that Greek banks, already given $68.6 billion euros in recapitalization funds from $325 billiion in two bailouts, need another $24.7 billion, the Financial Times reported.

That’s more than three times the six billion euros ($8.23 billion) what the government has estimated. The banks were brought to the edge of ruin when a previous administration in 2011 stiffed private investors with what amount to 74 percent losses.

That included banks in Cyprus, which forced the government there to also go to the Troika for a 10 billion euro ($13.7 billion) rescue, as well as Diaspora bondholders, some of whom lost much of their savings.

The €6 billion estimate was calculated by the Greek central bank after a long-awaited private analysis by BlackRock and was provided to monitors from the Troika before new talks were set to begin on Feb. 24.

The lenders are anxious over delays in a series of unresolved reforms and that the government hasn’t identified how to close a hole in the budget that could be as high as 2.4 billion euros ($3.3 billion).

The negotiations have sputtered for six months with Samaras emboldened by the primary surplus and becoming more resistant to Troika demands, including some 153 still-unfinished structural changes.

The disagreement over the banks could further delay whether the Troika, whose bailout monies run out this year, releases another 10.1 billion euros ($13.85 billion) installment or whether a third bailout will be needed, the newspaper said.

The government had hoped to use 10 billion euros ($13.67 billion) from cash remaining in the bank rescue fund to pay for other government expenses as part of a strategy to avoid a third bailout.

The IMF said last year the two bailouts will fall 15 billion euros ($20.85 billion) short of the country’s needs and if the government use all remaining cash in the bank rescue fund to recapitalize its financial system, it will be required to fill the financing gap with new bailout money.

The paper said that senior Troika officials have reported that the dispute has become so contentious that the IMF has threatened to publish its own estimates of banking sector needs if which are close to €20 billion ($27.44 billion – if Athens proceeds with the €6bn figure.

The disagreement has also called into question rosy government estimates about the size of a primary surplus as well as a current account surplus that benefited from a record number of tourists over the summer.

The ECB also reportedly wants Greece to take another look at government estimates the EU believes are too optimistic.

“The ECB needs a significant number to signal that its comprehensive bank assessment later this year will not be a walkover,” Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy told the paper.

“But there’s only limited cash left in the [bailout] envelope, and parliaments certainly won’t be committing any new money ahead of May’s European elections.”

One Greek banker briefed on the dispute said the government’s estimate is based on banks returning to profit next year, but Troika officials believe that scenario is overly optimistic, particularly given the rapidly increasing rate of non-performing loans which has hit 42 percent.

Among the worst-off banks is the state-owned Hellenic Postbank that failed and with many of its former officials being charged with setting up a bad loan scheme to defraud the institution of 500 million euros ($686.2 million).