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Banks, the first victim of SYRIZA’s economic policy

06 October 2015 / 16:10:03  GRReporter
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We present to you the analysis of journalist Kostas Stoupas in capital.gr.

My voters have no bank deposits, Prime Minister Alexis Tsipras said when his attention was drawn to the risk of banks being closed. The majority of unemployed, the cleaning ladies in the Ministry of Finance and the pensioners with low pensions really have no bank deposits. However, those who secure the unemployment benefits, the solidarity contributions, the public sector wages and the pensions have such. The Prime Minister should have known that.

The closure of banks during the summer was disastrous both to them and to the economy in general. We will calculate and pay the consequences in the immediate future, with the upcoming bank recapitalisation and the sharp increase in the unemployment rate. Actually, it comes to a third recapitalisation in a row, which means that the previous two were unsuccessful. And who is paying for this failure? Private entrepreneurs who provided part of the capital but mainly the ordinary Greeks who financed them through loans added to the national debt.

In 2013, banks were recapitalised with 28.6 billion euro, 25 billion euro of which came from the Greek Financial Stability Fund and 3.6 billion euro from private entrepreneurs. In the spring of 2014, banks were supported by another 8.3 billion euro, provided only by private entrepreneurs. Now the maximum limit is 25 billion euro.

Last winter we discussed that the 10 billion euro that had remained from the previous aid for banks might not be necessary and the state could use the amount as a preventive credit line, if we had closed the memoranda page. However, the deteriorated economic climate, especially after the closure of banks, requires a third recapitalisation, as it is expected that the number of bad loans will increase, although their growth has subsided. We do not yet know the increase in bad loans, we will know it at the end of the month. In any case, the rate of non-performing loans because of capital controls in Cyprus increased from 15% to 40% within one year alone and reached 45% in 2014. The corresponding percentage in Greece was calculated at 33% last year. Now, even the moderate estimates expect it to exceed 50%.
 
The Financial Stability Fund and private entrepreneurs put into the previous recapitalisations around 36.3 billion euro and the current estimated market value of the four largest Greek banks is under 4 billion euro. 4 billion euro means that if bank requirements for another recapitalisation amount to 16 billion euro the new shareholders will acquire 80% of banks. Therefore, those who have invested in the previous recapitalisations have lost almost all of their invested capital. The biggest loser will be the Greek state that had the lion's share in the recapitalisation. The question at this stage is the involvement of private entrepreneurs in bank recapitalisation. To get involved at all, they will have to be convinced that this will be the last recapitalisation and that Greece’s staying in the euro zone is guaranteed. Whether they believe this will become clear by the end of the year.

At present, Greek banks have given out loans worth 220 billion, keeping deposits amounting to nearly 122 billion euro. If it turns out that 50% of them are in the red, it means that over 100 billion euro is overdue. Part of this money is permanently lost, another part will be saved and will begin to be paid, but only if the economy starts to recover.

The Katselis law was disastrous as any horizontal legislation in such cases because it sharply increased the number of non-performing loans. When the state ensured that no home would be auctioned, along with those who were not able to pay their loans, those who had the opportunity not to pay theirs did so too. SYRIZA’s populist nonsense for debt forgiveness in recent years had been catastrophic as well. However, in the coming months, reality will force the government to proceed to the auctioning of homes and businesses. Only the prospect of having their home sold at an auction will force those who can to pay their loans, albeit with difficulty or to turn to banks to revise the terms of their loans. It will be interesting to see how those government members who were brought up with other attitudes will deal with this problem. And this is one of the issues that can shake the fragile parliamentary majority.

Many of the bad loans belong to companies that have been "phantoms" for many years and stayed on the surface only through the bank financing secured through the political access to the banking system. A significant part of these companies will go under the control of banks and after being restructured, they will be sold to new owners. This process will change the business map of Greece. This is one reason why the relevant parties cannot agree on the amount of recapitalisation. The higher it is, the greater the percentage participation of the Financial Stability Fund will be as well as the impact of the Single Supervisory Mechanism (SSM).

Tags: Greek banksRecapitalisationSingle Supervisory Mechanism SSM
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