Home' Trinidad and Tobago Guardian : July 27th 2015 Contents A16
Guardian www.guardian.co.tt Monday, July 27, 2015
banks are set to keep broad cash
controls in place for months,
until fresh money arrives from
Europe and with it a sweeping
restructuring, officials believe.
Rehabilitating the country s
banks poses a difficult question.
Should the euro zone take a
stake in the lenders, first requir-
ing bondholders and even big
depositors to shoulder a loss, or
should the bill for fixing the
banks instead be added to
Greece s debt mountain?
Answering this could hold up
agreement on a third bailout
deal for Greece that negotiators
want to conclude within weeks.
The longer it takes, the more
critical the banks condition
becomes as a 420 euro (US$460)
weekly limit on cash with-
drawals chokes the economy and
borrowers ability to repay loans.
"The banks are in deep freeze
but the economy is getting
weaker," said one official, point-
ing to a steady rise in loans that
are not being repaid.
This cash freeze is unlikely
to thaw soon, although capital
controls may be slightly soft-
ened, such as the loosening on
Friday of restrictions on foreign
transfers by businesses.
"Ultimately, you can only lift
the capital controls when the
banks are sufficiently capital-
ized," said Jens Weidmann, the
head of Germany s Bundesbank,
which pushed the ECB to pare
back bank funding, leading to
their three-week closure.
The debate is interlinked with
a wrangle over reforms, about
Greek sovereignty in the face of
European controls and whether
the country can recover with
ever rising debts that have
topped 300 billion euros, far
bigger than its economy.
Were another 25 billion euros
to be piled on top - the amount
foreseen for the recapitalization
of Greek lenders - it would add
to debts that the International
Monetary Fund has argued are
Greek officials, alarmed by a
downward spiral in the econo-
my, want an urgent release of
funds for their banks.
Four big banks dominate
Greece. Of those, National Bank
of Greece, Eurobank and Piraeus
fell short in an ECB health check
last year, when their restructur-
ing plans were not taken into
account. The situation is now
"We want, if possible, an ini-
tial amount to be ready for the
first needs of the banks," said
one official at the Greek finance
ministry, who spoke on condi-
tion of anonymity. "That should
be about 10 billion euros."
Others, including Germany,
however, are lukewarm and
could push for losses for large
depositors with more than
100,000 euros on their
accounts, or bondholders.
There are more than 20 billion
euros of such deposits in
Greece s four main banks,
dwarfing the roughly 3 billion
euros of bonds the banks have
Imposing a loss, something
the Greek government has
repeatedly denied any planning
for, would be controversial, not
least because much of this
money is held by small Greek
companies rather than wealthy
"This is not like Cyprus where
you can say these are just Russ-
ian oligarchs," said an insolvency
lawyer familiar with Greece.
"It s the very community
everyone is hoping will resus-
citate Greece, namely the cor-
porates. You ll end up depriving
them of their cash."
Christian Noyer, who heads
France s central bank and sits
on the ECB s Governing Council,
also cautioned against such a
step and said many of his peers
on the policy-setting body
agreed with him.
The tone in Berlin is different,
where some advocate not only
that bank creditors foot the bill
but also that the ESM steer clear
of any direct stake, lumbering
Athens with the banks clean-
"The recapitalization will have
to be done by the Greek gov-
ernment so that means more
money in the third programme,"
said Marcel Fratzscher, president
of the Berlin-based German
Institute for Economic Research.
"It s a loan they have to repay but
there is no risk-sharing on the Euro-
pean side. They will have to bail in
the private creditors. I can t see how
this could not happen."
To avoid such orders, Athens is
battling to keep autonomy in decid-
ing the fate of its banks. Ceding fur-
ther control could cost it dearly.
Bondholders are nervous.
Cyprus is a case in point. When
Cyprus was bailed out, one of the
island s two main banks was closed.
Capital controls, although gradually
scaled back, remained in place for
two years. One option, according to
euro zone officials, is the direct
recapitalization of Greece s banks by
the euro zone s rescue fund, the
European Stability Mechanism
(ESM). This could grant the Luxem-
bourg-based authority a direct stake
in the banks and greater control over
That, however, would take Greece
closer to the Cyprus model. Any such
direct ESM aid requires that losses
first be imposed on some of the
banks bondholders and even large
In Athens, officials would like the
money without such strings
"We don t know yet if the ESM
will take direct control," said one
senior Greek banker. "It will be an
issue at the negotiations."
With its economy starved of cash
and the threat of its departure from
the euro zone hanging over talks,
Athens room for maneuver is lim-
ited. One euro zone official summa-
rized the mood: "Whatever sympa-
thy there was for Greece has
Debt conundrum to keep Greek
banks in months-long freeze
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