Home' Trinidad and Tobago Guardian : July 26th 2015 Contents SBG14 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JULY 26 • 2015
After three weeks of clo-
sure, the reopening of
Greek banks on July 20
was a positive step. But
the banks remain
enfeebled: A liquidity
crisis has turned into
a solvency crisis. Until
worries about their viability are quelled after
the summer, when stress tests to determine
their capital adequacy will be held, they will
struggle to get back to some semblance of
Although the shutters have gone up and
there are no longer lines at ATMs, little has
changed in practice this week. Customers can
pay with checks and gain access to safe-deposit
boxes in banks where they have stashed cash.
However, strict capital controls still prevent
transfers abroad and the existing limit on cash
withdrawals remains in place, with only a cos-
metic change from the previous daily cap of
60 euros (US$65) to a weekly limit of 420
Yet the position could have been far worse.
After eking out a limited amount of cash
over three weeks, the banks were close to run-
ning out altogether. What made the difference
was the decision by the European Central Bank
(ECB) on July 16 to raise the amount of emer-
gency liquidity assistance (ELA) that the Bank
of Greece can provide to the banks.
Although the increase of 900 million euros
was relatively small, further rises appear likely,
especially since a temporary seven billion euro
loan from a fund backed by the EU allowed
the Greek government to redeem bonds worth
3.5 billion euros held by the ECB, together
with 700 million euros of interest, and to repay
its arrears of two billion euros to the Inter-
national Monetary Fund on July 20. As part
of the deal with creditors, the Greek Parliament
passed another set of reforms early July 23.
As Nikolaos Karamouzis, chairman of
Eurobank, one of the four big Greek banks,
said, what matters now is allowing the banks
to support businesses. The hope is that, with
continuing tight limits on cash withdrawals,
additional ELA can be passed on to companies
that urgently need trade credit. Since many
firms need to buy vital imports this would be
combined with an easing in capital controls.
Any such improvements are likely to rely
heavily on extra ELA rather than a return of
deposits. The banks previously experienced a
big run when two elections were held in the
early summer of 2012, arousing fears of a
forced exit from the single currency and a
redenomination of euro bank accounts into
Even after this risk receded after the second
election in June 2012, deposits were slow to
recover. Although concern about a "Grexit"
has subsided once again, households and espe-
cially businesses may now worry about a "bail-
in" of big deposits (above 100,000 euros)---
converting some of them to equity---in order
to recapitalize the banks, as happened in Cyprus
Although Danièle Nouy, head of the central
bank s supervisory board, which is now in
charge of overseeing the four big Greek banks,
said in early June that the Greek banks were
solvent, they have undoubtedly been the main
victims of this year s crisis. The run on the
banks, which started in December, ahead of
the election that brought Syriza to power in
late January, has made them heavily dependent
on central-bank funding, which now actually
exceeds private deposits.
The protracted liquidity squeeze on the
economy, exacerbated by the extraordinary
developments of the past month, is taking its
toll on businesses. Prospective losses from a
surge in non-performing loans, already very
high at 34 per cent at the end of last year, will
eat into bank capital. Quite how much damage
has been done will be revealed in the autumn.
It nonetheless seems very unlikely that
depositors will be bailed in to recapitalise the
banks. For one thing, the EU s bail-in rule is
not supposed to apply until 2016 (although,
within the euro area, Austria and Germany
have already introduced it this year). That
should rule out raids on deposits, restricting
the sacrificial victims to shareholders (together
with small amounts of subordinated debt).
Even if bail-ins were allowed they would
be extraordinarily counterproductive. In
Cyprus, there was a case for using this
approach on the ground that many of the
deposits affected were ultimately owned by
Russians and Ukrainians and were of dubious
provenance. But in Greece they would destroy
the working capital of small and medium-
sized businesses, the backbone of the country s
But until the banks have been sorted out
and recapitalised this fall, depositors will remain
nervous. Karamouzis said that, if the rest of
Europe could offer swift reassurance to Greek
depositors that they will not be bailed in, it
would have a catalytic effect in restoring con-
fidence and getting deposits back into the
As things stand it will be several months at
the least before there is a return to normal.
Whatever that now means in Greece.
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Greece on Friday invited
the International Mon-
etary Fund to participate
in its negotiations with
European creditors over
a vital third bailout; talks
that are expected to start
next week after a few
days delay and must conclude before Greece
faces another big repayment August 20.
Negotiators are now expected to arrive in
Athens over the weekend with talks probably
starting Monday, Greek officials said.
Athens is looking to secure yet another
bailout---the third since its finances imploded
in 2009---worth 85 billion euros (US$93 billion)
over three years. Without the money, the coun-
try faces imminent bankruptcy and a probable
exit from the shared euro currency.
The letter to the IMF, signed by Finance
Minister Euclid Tsakalotos, formally requests
a new bailout from the fund. That is in accor-
dance with the preliminary third bailout agree-
ment Greece struck with its European partners
on July 12, which called for IMF financing and
monitoring for Greece from March 2016---when
current IMF financing ends.
The letter said Athens believes it will take
"several quarters" before the Greek economy
faces up to its challenges "and returns to a vig-
orous and sustainable path to growth with fair-
ness and social inclusion."
"We look forward to continued cooperation
with the fund," it added.
Greek government spokeswoman Olga
Gerovasili said the final third bailout agreement
will be brought to Greece s parliament for
approval on August 18.
"Clearly, the negotiations will be constant
until then," she said Friday.
Greece has a debt repayment of around 3.2
billion euros (US$3.5 billion) to the European
Central Bank on August 20.
Greece s five-year financial crisis took a dra-
matic turn for the worse this summer, after
talks between its radical left-led government
elected in January and the country s creditors
nearly collapsed amid sharp disagreements over
the reforms required in return for the rescue
loans. The new bailout was only possible after
Prime Minister Alexis Tsipras made a sharp U-
turn from years of vehemently opposing further
Since its first bailout in 2010, Greece s econ-
omy has shrunk by a quarter, while unemploy-
ment has rocketed to record peacetime highs
and incomes have shrunk an average of 40 per
cent. Much of the pain has been attributed to
the income cuts and tax hikes demanded by
It s unclear to what extent IMF participation
complicates the latest bailout talks. The fund
has been critical of many of the demands insist-
ed upon by Greece s European creditors but it
also says Greece needs deep, meaningful debt
relief; something that Germany and other Euro-
pean nations are dead set against.
Gerovasili said the IMF position on Greece s
crippling debt load--- the highest in the 19-
country eurozone---"is clearly something we
But she added the fund "is tougher in nego-
tiations, with harsher terms, and is not very
agreeable to us as a negotiator."
Gerovasili dismissed reports that security
concerns delayed the talks Friday, blaming
"technical issues" instead.
"Greece is a safe country," Gerovasili said.
"Both sides are trying to expedite the start of
The final hurdle Greece had to clear before
talks could restart came early Thursday when
Greek lawmakers approved creditor-demanded
judicial and banking reforms. A week earlier,
parliament approved new laws introducing
steep sales tax increases. In spite of a revolt
from his own Syriza party, Tsipras managed to
get both reforms passed with the help of pro-
European opposition parties.
Top Greek banking and finance ministry offi-
cials met with Greek business leaders Friday
to discuss ways of easing financial transactions,
which are being restricted by the capital controls
introduced last month.
Banks reopened last Monday after being
closed for more than three weeks, albeit for
limited transactions. Daily withdrawals at ATMs
are still limited to 60 euros (US$65) per account
holder, and the Athens Stock Exchange has
been closed indefinitely.
On Friday, authorities eased the restrictions
slightly, allowing Greeks to take up to 2,000
euros (US$2,200) or the equivalent in foreign
currency out of the country per trip.
"With time, the situation is returning to nor-
mal. We aim to have things return to the way
they were before," Deputy Finance Minister
Dimitris Mardas said.
Small Business Association Chairman Giorgos
Kavvathas said the daily limit for businesses
to transfer money abroad has been raised to
100,000 euros (US$155,080) but Greek author-
ities are vetting those money transfers.
Kavvathas said check transactions are still
posing a problem for businesses. Mardas said
authorities are looking at ways of dealing with
that and will soon announce a decision.
The long march to normality
IMF to join
in Athens, Thursday,
July 23, 2015. AP
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