Tsipras’ biggest stress tests yet to come

by Hugo Dixon

Reuters
November 2, 2015

One stress test is over, but several more are looming. Alexis Tsipras received good news at the weekend when a stress test showed the top Greek banks need to raise a lowish 14.4 billion euros in capital. But the leftist Greek prime minister has to implement more tough measures before he can get the economy growing. Until then, he faces political risks, which could yet tip Greece back into crisis.

An assessment by the European Central Bank found that the four banks – Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank – have a collective capital shortfall of 14.4 billion euros in the so-called “adverse” scenario. This is less than the 25 billion euro maximum earmarked for bank recapitalisation as part of Greece’s latest bailout programme. What’s more, the banks will only need to find perhaps around half that amount in state aid. The rest they can probably get by swapping bondholder debt into equity capital, issuing shares to private investors and selling assets.

What this means is that Greece’s headline debt may be roughly 15 to 20 billion euros lower than earlier projections – peaking at a still eye-popping level of 190 percent of GDP, rather than 200 percent.

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