Mario Draghi pushes for ECB to accept Greek and Cypriot ‘junk’ loan bundles

Financial Times
September 30, 2014

Mario Draghi is to push the European Central Bank to buy bundles of Greek and Cypriot bank loans with “junk” ratings, in a move that is set to exacerbate tensions between Germany and the bank.

Mr Draghi, ECB president, will this week unveil details of a plan to buy hundreds of billions of euros’ worth of private-sector assets – the central bank’s latest attempt to save the eurozone from economic stagnation.

The ECB’s executive board will propose that existing requirements on the quality of assets accepted by the bank are relaxed to allow the eurozone’s monetary guardian to buy the safer slices of Greek and Cypriot asset backed securities, or ABS, say people familiar with the matter.

Mr Draghi’s proposal is designed to make the programme of buying ABS, which are bundles of packaged loans, as inclusive as possible. If it is backed by the majority of members of the ECB’s governing council, the central bank would be able to buy instruments from banks of all 18 eurozone member states.

However, the idea is likely to face staunch opposition in Germany, straining already tense relations between the ECB and officials in the eurozone’s largest economy.

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Private Bad Debt Buildup Casts Shadow on Greek Rebound

by Eleni Chrepa and Nikos Chrysoloras

Bloomberg
September 29, 2014

To Aristides Belles, it’s clear what’s blocking Greece’s recovery: a quiet build-up of about 164 billion euros ($208 billion) in bad loans.

“The inability of Greek companies to repay their loans to banks and their dues to the state is clearly holding back Greece’s return to growth,” said the chief executive officer of Athens-based Nireus Aquaculture SA (NIR), a producer of sea bream, sea bass and processed fish. “It’s more necessary than ever for all parties involved -- banks, corporates and the state -- to agree on an arrangement.”

As Greece and its euro-area creditors meet tomorrow to prepare for talks on repayment terms for its public debt, a less-visible crisis is looming on another front: bad debts of households and companies. The borrowings, amounting to about 90 percent of Greece’s gross domestic product, are weighing on the country’s hopes of recovering from the steepest and longest recession on record.

Non-performing loans at Greece’s banks have reached almost 80 billion euros, according to the country’s Growth and Competitiveness Minister Nikolaos Dendias. To top that, Greek households and corporations had overdue taxes of 69.2 billion euros in August, data from the public revenue secretariat show. Also, “collectible” social arrears to pension funds exceed 14.5 billion euros, according to labor ministry figures.

“Some of this debt can never be recovered and should be written off,” said Panos Tsakloglou, a professor at the Athens University of Economics and Business who was Greece’s representative in the working group of senior euro-area finance ministry officials until June.

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Greek Debt Gives Best Return as Stocks Show Samaras Woes

by Nikos Chrysoloras

Bloomberg
September 26, 2014

As Prime Minister Antonis Samaras tries to convince Angela Merkel that Greece can handle an early exit from its bailout program, bond and stock investors offer contrasting verdicts on the health of the country’s economy.

Even after a sell-off this week, Greek debt delivered the highest returns among sovereign securities so far this year, based on Bloomberg World Bond Indexes, jumping 27 percent. At the same time, the trend in the country’s equity market is less encouraging. Having surged 28 percent last year, the benchmark Athens Stock Exchange Index has lost 6.4 percent during 2014.

“There is progress and determination in some areas, like reform of the public administration, but elsewhere, the momentum is problematic,” said Kevin Featherstone, a professor of contemporary Greek studies at the London School of Economics. “Greece’s path would be eased by continuing external support, but Samaras needs to show that the country can be freed of the troika well ahead of possible elections in spring 2015.”

Samaras came to power in June 2012 on a pledge to keep his country in the euro area, a strategy which culminated in April when Greece ended its four-year exile from the bond market. The yield on Greece’s 10-year bonds, which reached a record 44.21 percent in March 2012, has since plummeted and fell to 5.469 percent as recently as this month, less than Iceland or Mexico.

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German Central Bank Head Weidmann: 'The Euro Crisis Is Not Yet Behind Us'

Spiegel
September 24, 2014

An extended period of calm on the bond markets has led many to conclude the euro crisis is over. But German central bank head Jens Weidmann says in an interview that the coast still isn't clear and that there is still great need for reforms.

SPIEGEL: Mr. Weidmann, you are notorious for being a tough critic of European Central Bank President Mario Draghi. But the euro crisis seems to be over, largely thanks to ECB intervention. Has he not been proven right?

Weidmann: It's not about being right or a personal confrontation. When it comes to extremely important monetary policy decisions, the ECB Governing Council does its utmost to find the correct path. And the decisions are so difficult because the crisis is not yet behind us, even if the current calm on the financial markets might suggest as much.

SPIEGEL: Yet Spain, once wracked by the euro-zone crisis, can today borrow money more cheaply than ever before in the history of the monetary union. Do you not think that is a consequence of Mario Draghi's 2012 pledge to save the euro "whatever it takes"?

Weidmann: You shouldn't mistake the thermometer for the illness. I have never disputed that the ECB could impress and move the markets with the announcement that it would make massive purchases of sovereign bonds if necessary. But such measures focus on the symptoms and don't cure the causes of the crisis. As such, the current calm is misleading and even dangerous, because it takes pressure off of the governments to implement badly needed reforms. If they are not undertaken, investors could quickly change their risk evaluations.

SPIEGEL: But if the ECB hadn't intervened, the euro zone patient may well have died from its 2012 fever.

Weidmann: I don't believe that is the case. In reaction to the crisis, policymakers established a multibillion euro bailout fund to assist the crisis countries in exchange for their adherence to certain stipulations. That was the correct, democratically legitimate path. Even more so given that the bailout fund can also purchase sovereign bonds. The central bank in the euro zone, by contrast, is forbidden from providing credit to countries and from purchasing sovereign bonds on the primary market. By making targeted bond purchases on the secondary market, the ECB opened itself to accusations of skirting this ban.

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Investors Returning to Greece's Real Estate Market

by Stelios Bouras

Wall Street Journal
September 2, 2014

Since the European debt crisis erupted in 2009, foreign investors have mostly ignored Greek real estate even as they have jumped back into Spain, Italy and Ireland.

But now buyers are returning to Greece amid signs that Europe's hardest-hit economy is starting to recover.

Toronto's Fairfax Financial Holdings Ltd. FFH.T -0.33% , Colony Capital LLC of Los Angeles, Invel Real Estate Partners of the U.K. and Jermyn Street, an Arab-Turkish real-estate fund, are among those that have been buying commercial-property assets from distressed financial institutions, the Greek government and others.

In the past 18 months, investors have purchased €1.2 billion ($1.58 billion) of properties, primarily from banks and the Greek agency charged with privatizing state-owned assets, the Hellenic Republic Asset Development Fund, according to commercial real-state company Cushman & Wakefield. That compares with about €900 million in deals from 2008 to 2012.

New players such as international real-estate firm Hines, which controls assets valued at more than $25 billion, also are shopping around. "Hines believes that Greece is transforming and that the real-estate sector will require significant foreign investment," Michael J.G. Topham, chief executive of Europe for Hines, said in an email. "It's a difficult market but we feel that there are opportunities worth pursuing."

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Greece seeks tax cut from troika after years of belt-tightening

by Kerin Hope

Financial Times
September 1, 2014

Greece is seeking to persuade its international creditors that it is entitled to a 2015 tax cut after years of wrenching austerity since the country is now on track to outperform its fiscal targets by a comfortable margin this year.

Gikas Hardouvelis, a technocrat who took over in July as finance minister, will make that argument during meetings in Paris on Tuesday with officials from the troika of lenders – the European Central Bank, the European Commission and the International Monetary Fund – overseeing the country’s bailout.

Mr Hardouvelis says Greece’s primary budget surplus, before debt repayments, will exceed this year’s target of 1.5 per cent of national output – although he has not revealed by how much.

A series of tax reductions – in value added tax, a special levy on heating fuel and the so-called “solidarity tax” paid on annual incomes above €12,000 – are among the measures Mr Hardouvelis is expected to propose to the troika.

Cuts to any of those levies would offer much-needed relief to Greek taxpayers burdened by unprecedented property taxes and other special measures to help pay for the bailout. It would also reinforce the message that Greece has at last emerged from a historic crisis.

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