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Christina Vasilaki: With an eye to the recapitalisation of the Greek banks and the “thorn” of foreclosures

The Eurogroup meeting on 9 November was held with an eye to the recapitalisation of the Greek banks. A few days after the publication of the “positive” -as they were characterised by the European institutions- results of the stress tests of the four systemic banks, and in the midst of increased interest of private investors, the Eurozone finance ministers opted to maintain the positive spirit of cooperation and to speed up the procedures for the successful and timely recapitalisation of the banking system.

“A large percentage, if not all” of the banks’ capital needs “shall be covered by private investors”, said the President of the Eurogroup, Jeroen Dijsselbloem, in the following day during a hearing before the European Parliament, adding that this is “good news both for banks and the sustainability of the Greek debt”. He went on to point out that “the process of recapitalisation is progressing faster than expected”.

The Managing Director of the European Stability Mechanism, Klaus Regling, also expressed his satisfaction at the results of the Greek bank stress tests during a press conference after the Eurogroup meeting, stressing the fact that the Greek banks will eventually need less money than originally foreseen, which is a very positive development.

For his part, the German finance minister Wolfgang Schäuble said that he wants the Eurozone to pay Greece the funds earmarked for the banks by the beginning of the coming week. “We are trying to enable the payment of the €10 bn., which had been initially agreed upon, until the beginning of the next week”, he said emphatically speaking to reporters in Brussels.

Therefore, despite the delays recorded in the completion of the first package of prerequisites, the Eurogroup offered the Greek government another week to complete the implementation of the measures related to the financial sector, i.e. the measures to manage non-performing loans and the administration of banks, in order to release -already from the beginning of the coming week- the €10 bn. reserved for this purpose in a special ESM account. Moreover, upon completion of the implementation of the first package of prerequisites at the end of the week -which has been pending mainly due to the disagreement between the institutions and the government concerning the thresholds of protection against foreclosures- the €2 bn. sub-tranche shall also be disbursed. According to the President of the Eurogroup, the implementation of the aforementioned measures will be assessed by no later than early next week during the meeting of the Eurogroup Working Group, which has the authority to give the green light for disbursement.

As outlined in the Eurogroup statement, the €10 bn. can only be transferred to the Hellenic Financial Stability Fund (HFSF) “once the agreed conditions are met”. Nevertheless, it is evident that the decision of Monday uncoupled the remaining prerequisites of the second package, such as the reform of the social security system, from the recapitalization process.

The “thorn” of foreclosures

Following the Eurogroup of Monday, the officials of the four institutions responsible for Greece (European Commission, ECB, IMF and ESM) traveled to Athens in order to resolve the pending issues of the negotiation by the end of the coming week.

According to the statement of Commissioner for Economic and Financial Affairs Pierre Moscovici after the Eurogroup, the Greek government has so far met 80% of its obligations, although some issues remain open to negotiation, such as the first residence protection from foreclosures. Based on the initial proposal of the Greek government, the majority of indebted households (over 70%) must be protected, whereas the institutions insist to limit protection only to those who are truly vulnerable, i.e. to a minority of households. The Greek side says that its proposal, which is based on three criteria concerning the objective value of the property (€200,000 for an individual, 250,000 for a couple, plus €25,000 per child and up to a maximum of three children), the gross annual income (€35,000 for a family of four) and total debt to banks and pension funds (€200,000), is fully compatible with the memorandum, which refers to a “tightening of the eligibility criteria” while protecting the “most vulnerable social strata”, in contrast to the previous provision which entailed one criterion only, i.e. objective value. The institutions, on the other hand, believe that the proposal of the Greek government, and especially the income criteria that it sets, do not reflect what was agreed on 12 July.

“All sides must make efforts,” said Pierre Moscovici, adding that “we have to find solutions that will protect the most financially vulnerable citizens but at the same time prevent those who are able to repay their loans but do not do so from abusing the system”. In the same direction, Jeroen Dijsselbloem expressed his hope before the European Parliament that the representatives of the institutions and Greece will reach a “balanced” proposal within the week concerning the first residence protection from foreclosures. He said that the aim of both the European Commission and the Eurogroup is to protect financially vulnerable households while forcing those who take advantage of the protection system to meet their financial obligations to banks, in order for the latter to become “healthy” again.