ECB says Greece’s banks need more than €14bn in fresh capital

Financial Times
October 31, 2015

The European Central Bank has said Greece’s troubled banks need more than €14bn in fresh capital pumped into them to survive.

The results of the ECB’s health check of Greek banks show the top four lenders are short of €14.4bn in capital under supervisors’ so-called “adverse scenario”, where lenders must be able to withstand a worsening of economic and financial conditions. Under the standard scenario of what is known officially as the “comprehensive assessment”, the capital shortfall is €4.4bn.

Piraeus Bank needs €4.9bn in fresh capital, the National Bank of Greece €4.6bn, Alpha Bank €2.7bn and Eurobank €2.1bn.

The banks have until 6 November to say how they plan to plug the capital hole. They have already moved to pre-emptively boost their capital in advance of results of the tests, which are a key part of the €86bn Greek bailout that euro area leaders agreed in July. That bailout deal earmarked as much as €25bn in support for the banks.

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Greece reconsiders a tax on private education

Economist
October 30, 2015

Before Greece’s snap elections in September, the outgoing left-wing government laid out plans for a value-added tax of 23% on private education. The measure, dreamed up by the governing Syriza party as an alternative to raising tax on beef, featured in their manifesto as a blow against plutocracy. It looked like a double win that would simultaneously please creditors and demonstrate the government’s commitment to helping the underprivileged. Unsurprisingly, it did neither.

Some of the country’s reasonably priced private schools were forced to close, leaving staff jobless. Elsewhere, fees rose. Those affected were not just rich families. Greece has more than 300 full-time private schools, attended by about 6% of school-age children, many of whom come from middle- and lower-income families. With tuition fees as low as €2,500 ($2,750) a year, some operate in working-class areas and attract parents who are keen to give their children a leg up.

Those whose parents were unable to pay higher fees moved into the already overwhelmed state system. At the beginning of term in September, Greek schools were short of some 12,000 teachers, according to the ministry of education. Some predict the shortfall will soon exceed 20,000.

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Greece: Dynastic divisions

by Peter Spiegel

Financial Times
October 29, 2015

Until Alexis Tsipras swept to victory in national elections nine months ago, Greece had been governed almost continuously by scions of the country’s most politically-connected families for over a decade.

Antonis Samaras, Mr Tsipras’s immediate predecessor, descends from a family so prominent that the street running into the entrance of his Athens prep school was named for his maternal grandfather. George Papandreou, premier at the outset of the eurozone crisis, is the son and grandson of prime ministers. And Kostas Karamanlis, the longest-serving of the group, is the nephew of another prime minister who founded the country’s main centre-right party, New Democracy.

Kyriakos Mitsotakis, one of the politicians seeking to revive New Democracy after it was crushed by Mr Tsipras’s far-left Syriza party in elections last month, says it is time to end the dominance of the Greek political dynasties.

“New Democracy, if you look at the party, it’s almost feudal in its structure,” Mr Mitsotakis says, sitting tieless in his Athens office. “You have the big political families . . . the big players, the old prime ministers, and everyone is sort of bargaining for power. This is rubbish.”

But Mr Mitsotakis — arguably the most prominent of four candidates seeking to lead New Democracy — acknowledges he may be a somewhat awkward messenger. Not only is he the son of a former prime minister, but his sister, Dora Bakoyannis, is a former mayor of Athens and Greek foreign minister who ran for party leader against Mr Samaras six years ago.

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ECB Check of Greek Banks to Show 14 Billion-Euro Hole

Reuters/New York Times
October 29, 2015

The European Central Bank's health check of Greece's four big banks will show a total capital shortfall of up to 14 billion euros ($15.34 billion) if economic conditions become "adverse", two banking sources told Reuters on Thursday.

The ECB's Single Supervisory Mechanism (SSM) is assessing the capital needs of National Bank of Greece, Piraeus, Alpha Bank and Eurobank. Results will be released on Saturday.

The ECB's so-called comprehensive assessment of the banks' books included a scrutiny of their loan portfolios and stress tests carried out using baseline and more adverse scenarios for the course of the Greek economy to project possible credit losses up to 2017.

Under the baseline scenario, the stress test will show a capital gap of about 4.5 billion euros for the four banks, one of the sources said. Factoring in the adverse scenario, it could be as high as about 14 billion.

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EU's Dombrovskis: Greece must recapitalize its banks by year end

Reuters
October 27, 2015

Greece and international lenders must recapitalize its banks by the end of the year and swiftly finalize an assessment of the country's bailout-mandated economic reforms, EU Commission Vice-President Valdis Dombrovskis said on Tuesday.

Unless Greece's four biggest banks are recapitalized before legislation takes effect in January, depositors will be liable for plugging capital shortfalls, he said.

"Euro group conclusions on this question are quite clear, that recapitalization of the banks is to take place after the first review, but no later than the 15th of November," Dombrovskis told Greece's Skai TV in an interview.

Dombrovskis - in Athens to discuss the reforms Greece needs to complete under terms of an 86-billion-euro ($95-billion)bailout - said that things would get "more complicated" if that did not happen.

"Then you need to apply the Bank Resolution and Recovery Directive ... which may imply a bail-in," he said, referring to bank depositors being forced to contribute to recapitalization, similar to a raid on deposits in Cyprus in 2013.

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Greece’s Long Road From ‘No’ to ‘Yes’

by Nikos Konstandaras

New York Times
October 26, 2015

Greeks will commemorate the Oct. 28 national holiday in a very different country from what it was a year ago. The anniversary marks the day in 1940 when a Greek government rejected an ultimatum from Fascist Italy to allow its troops to enter the country. The “No” (“Ochi” in Greek) united a deeply divided country behind a right-wing dictatorship and thrust Greece into World War II on the side of the Allies. “No” is a symbol of defiance. But now Greeks must decide what they want, rather than what they reject.

On “Ochi Day,” military parades and patriotic speeches hail a small nation’s resilience against insurmountable odds. After initially pushing Italian invaders deep back into Albania, the Greeks were overwhelmed by a German blitz that led to four years of brutal occupation and determined resistance. After the war, the old divisions roared back, with a civil war between Communist forces and a government that was backed first by Britain and then by the United States leaving a lasting legacy of pain and suspicion between left and right.

Despite divisions and strife, the “No” of 1940 has stood as a unifying memory of a nation that will tolerate no foreign master. Recently, though, in the throes of a devastating economic crisis, the Greeks were divided once again, and the talismanic “No” was commandeered by one side.

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Hoping to Save a Way of Life by Rooting Out Greeks Who Farm on Paper

by Suzanne Daley & Dimitris Bounias

New York Times
October 23, 2015

In a stone cottage beside his pomegranate fields here in northern Greece, Christos Gontias, 46, is chain smoking and trying to give an interview. But his cellphone is ringing so incessantly, often with requests from news outlets and farmers joining his most recent call for a nationwide protest, that he rarely has time to finish his thought.

He readily admits that he likes all the attention. But there is far more to it than that, he says. He believes his way of life is on the line.

“I’m in love with the land,” said Mr. Gontias, a farmer and a union leader, glancing out the window. “By that I mean I love putting seeds in the ground and watching them grow, and knowing that I am providing a healthy product. And I am willing to fight for the ability to keep doing that.”

These days, he is fighting the terms of Greece’s latest bailout by its international lenders, which calls for sharp rises in the taxes farmers must pay and in their pension contributions, and he has been bringing hundreds of farmers with him into the streets. Using tactics reminiscent of French farmers’, they have repeatedly parked their tractors in central intersections and even outside polling stations during the elections last month.

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Tspiras fires his tax chief

by Yannis Palaiologos

Politico
October 23, 2015

The Greek government decided Thursday to fire the head of the General Secretariat for Public Revenue, in a move that critics are slamming as old-school clientelism, which could create tensions in the country’s relations with its official creditors.

The office in question, the top position in Greece’s beleaguered tax administration, was created in 2012 by the Antonis Samaras government under intense pressure from the troika, with the express purpose of restricting political involvement in the collection of taxes and the auditing of businesses and individuals. The forced resignation of its first head, Haris Theoharis, now an MP for Potami, in June 2014 constituted a blow to Samaras’ relationship with Greece’s creditors from which he never recovered.

Now the same treatment is being meted out to Theoharis’s successor, Katerina Savvaidou, a feisty former PwC tax lawyer, only 16 months into a supposedly fixed five-year term.

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Three days that saved the euro

by Ian Traynor

Guardian
October 22, 2015

Late on the afternoon of Friday 10 July, as European finance ministers were packing their bags for Brussels to attend yet another meeting on the Greek debt crisis, a shocking email from Berlin landed in the inboxes of a very small number of top officials. Earlier that week, the Greek prime minister, Alexis Tsipras, had been given an ultimatum by his fellow European leaders: deliver a radical new blueprint for economic reform and spending cuts – or face bankruptcy.

Tsipras had delivered a new set of proposals, but before officials could meet in Brussels to discuss them, the German finance minister, Wolfgang Schäuble, delivered a preemptive strike: if the Greek government would not undertake more drastic reforms, the German email said, “Greece should be offered swift negotiations on a time-out from the eurozone.” There had been speculative talk that Greece might have to quit the single currency – and sentiment among other euro members had hardened against Athens in the six months since Syriza, Tspiras’s leftwing movement, came to power – but until now, no one had formally proposed pushing the country out.

“It was clear,” one recipient said. “It was written down. It was harsh. It was brutal.” Schäuble, the most experienced politician in power in Europe, had gone for the jugular – and the email sent alarm bells ringing in Paris, Rome, Frankfurt and Brussels.

“It was never officially distributed – only to core people,” said a senior official involved in the meetings, who saw the email on the Friday evening. “It showed a tough stance. It was clear that Grexit was an option. It meant that on Monday we would start the preparations.”

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Greece open for business, head of privatisation programme says

by Kerin Hope

Financial Times
October 19, 2015

Disputes among hard-left cabinet ministers and lingering concerns about Greece’s future in the eurozone have not made it any easier to sell Greek assets to foreign investors.

Still, such distractions have not dented Stergios Pitsiorlas’s hopes of wrapping up three key infrastructure sales potentially worth billions of euros by early next year.

The chairman of Greece’s privatisation agency, the Hellenic Asset Development Fund, (Taiped) insists that deals involving ports, railways and airports that were frozen when the leftwing Syriza government took over in January are now back on track.

“These are transactions that are going to have a big economic impact. When they’re completed the Greek economy will present a very different picture,” Mr Pitsiorlas said in an interview.

Greece committed to privatising €50bn in state-owned assets to help repay its debts when it accepted its first international bailout in 2010. Yet the programme has so far been a mess. Cash proceeds last year came to just €530m.

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Syriza presents controversial package of tax and pension reforms

by Kerin Hope

Financial Times
October 13, 2015

Greece’s leftwing Syriza-led government has presented more tax and pension reforms to parliament amid growing concerns that the package of measures will prolong the country’s six-year recession.

The proposals are being discussed under emergency procedures so that Greece can meet a weekend deadline set by creditors for implementing a tough front-loaded package of fiscal and structural measures in return for an €86bn bailout.

Winning approval for the package will be a test for Alexis Tsipras, the prime minister, and his party that won last month’s general election but only has a four-seat majority in parliament.

Mr Tsipras, whose policy somersault in July to embrace economic reforms prompted a rebellion by Syriza hardliners and triggered the general election, has already moved to head off possible further defections by Syriza backbenchers.

He rallied Syriza’s central committee behind him at a weekend meeting and tightened his grip on the party executive with the election of three cabinet ministers to the 17-member political committee.

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Requiem for the Loony Left

by Yannis Palaiologos

Politico
October 9, 2015

This weekend saw the swearing-in of Greece’s new parliament and the election of the new speaker of the house, Nikos Voutsis, a Syriza elder and loyal associate of the prime minister, Alexis Tsipras. At the same time, the pompously named Greek Debt Truth Commission, led by the outgoing speaker Zoe Konstantopoulou, delivered the findings of its investigation on the origins of the country’s debt problem. Predictably, it found that Greece’s debts were “illegitimate, illegal and odious.”

Konstantopoulou, who has failed in her bid to be reelected as an MP, called a four-day session of the Truth Commission just after the September 20 election, in a desperate bid to remain in the spotlight for a little bit longer.

She had even pre-announced that she would call on Yanis Varoufakis, the mercifully departed finance minister, to appear, in order to explain how the country was led to sign a third bailout agreement. The public sessions were broadcast on the television channel of the parliament.

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The Mirage of Structural Reform

by Dani Rodrik

Project Syndicate
October 8, 2015

Every economic program imposed on Greece by its creditors since the financial crisis struck in 2009 has been held together by a central conceit: that structural reforms, conceived boldly and implemented without slippage, would bring about rapid economic recovery. The European Commission, the European Central Bank, and the International Monetary Fund anticipated that fiscal austerity would be costly to incomes and employment – though they significantly underestimated just how costly. But they argued that long-delayed (and much-needed) pro-market reforms would result in a compensatory boost to the Greek economy.

Any serious assessment of the actual results produced by structural reforms around the world – particularly in Latin America and Eastern Europe since 1990 – would have poured cold water on such expectations. Privatization, deregulation, and liberalization typically produce growth in the longer term at best, with short-run effects that are often negative.

It is not that governments cannot engineer quick growth takeoffs. In fact, such growth accelerations are quite common around the world. But they are associated with more targeted, selective removal of key obstacles, rather than broad liberalization and economy-wide reform efforts.

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Alexis Tsipras pledges to steer Greece back to growth

by Kerin Hope

Financial Times
October 6, 2015

Alexis Tsipras has pledged to steer Greece back to economic growth in the second half of next year but said he would try to negotiate softer terms with the country’s creditors on energy liberalisation and social policies.

The Greek premier won an unexpectedly solid victory in a snap election held last month. In his first big policy speech since his election, Mr Tsipras said in parliament on Monday night that debt relief would be a priority for the new Syriza-led government after it legislates a new €4.3bn package of fiscal and structural reforms in the coming weeks.

In contrast with the fiery anti-austerity rhetoric of his first days in office last January, a subdued Mr Tsipras said he was “fully aware the new (bailout) agreement has difficult points . . . VAT increases, tax hikes for farmers and changes in the pension system, all these will create problems”.

But he vowed to “do everything we can to find alternatives or ways of moderating the negative consequences (of reforms)”.

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Greece’s to-do list

by Zeke Turner

Politico
October 5, 2015

Greek Prime Minister Alexis Tsipras will need to reach almost 50 reform milestones later this month in order to keep the bailout money flowing.

Eurozone finance ministers meeting here Monday evening agreed Greece must continue implementing austerity measures, including tax increases for farmers, changes to personal bankruptcy rules, pension cuts and the privatization of state-owned utilities.

In exchange, Greece can borrow €2 billion from a loan package arranged with creditors in August and worth up to €86 billion.

Some of the measures should have been completed last month, according to the terms of the bailout, but were delayed by Greek elections.

“There were just elections, the government has just been formed, it’s too early to talk about there being a delay,” German Finance Minister Wolfgang Schäuble told reporters when he arrived.

In what has become a perverse ritual, Greece is expected to use some of the new money to repay old debts. The country faces an October 13 bill of €450 million on an existing loan from the International Monetary Fund connected to its first bailout program in 2010.

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Greek bank recap is race against time

by Hugo Dixon

Reuters
October 5, 2015

Greece is racing against time to recapitalise its banks. Capital must be injected by year-end, when euro zone rules on financial bailouts change. This is to avoid a haircut of uninsured depositors, which could cause the country to enter a new downward spiral.

To meet the deadline, lots of things need to fall into place. The European Central Bank first has to finish its stress test to decide how much capital the banks, whose balance sheets have been hit by capital controls and recession, require.

The four systemically important banks – Alpha, Eurobank, National Bank of Greece and Piraeus - then need to see if private investors will take part. If not, the recapitalisation will be funded entirely by a loan from the euro zone to Athens, an outcome which would lead to almost total nationalisation and probably the removal of the existing management.

Alexis Tsipras, Greece’s recently re-elected prime minister, also needs to deliver on a wide array of commitments he has made to its euro zone partners. If he doesn’t, they won’t lend Athens up to 25 billion euros to pop into the banks, as promised under the country’s new bailout programme.

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