Ποιειν Και Πραττειν - create and do

Banking Sector Rejuvenation and Credit Expansion Influence of the ECB central monetary policies

Anastasios Anastassatos, General Secretary, Ministry of Finance of the Hellenic Republic

Kerasina Raftopoulou, Former Head of Enterprises Division in Agricultural Bank, Member of the Secretariat of the Economic Policy Department of SYRIZA and Head of Finance sector.

Chair: Stamatis Zacharos, Managing Editor, Capital.gr/”Kefalaio” Newspaper


Anastasios Anastassatos, General Secretary, Ministry of Finance of the Hellenic Republic

I wish to inform you on the last data and how this affects the Greek economy.

ECB – security loans / decision last Thursday – accelerate inflation as one of the tools to deal with the economic situation.

We have stable interest rates but it is important that banks have the obligation to channel the money into the real economy.

It takes the ECB one step towards easing the regulation. The last step would be to purchase state bonds. What is taking place in effect is printing of money.

Draghi – policy of the ECB for loans (classified) but the size of the programme is still not known. What the measure will do is that it will increase the liquidity of the bank by 1 trillion. Greek and Cyprus banks are liable to access this programme.

If we consider this, especially if Greek banks have uncovered 4 billion loans but not with high risks, this will affect the situation.

The ECB will carry out this in October.

Not surprising is the low response by banks but in the case of Greek banks an expansive monetary program has a lower cost. It is linked to the level of employment.

How then to reinforce the demand of the local market. As long as the productive basis of the country is weak, any higher demand would mean merely consumption which leads to further imports and therefore aggravate the balance of payments.

In the last auction only 50% of the bonds were taken in by banks and if they do not channel money into the real economy, then they will have to give them back in two years. Which shows that economic activity is important.

We see economic activity has improved somewhat and yet there are uncertainties which affect investments. There is fear of elections / political risks.

Agreement for servicing the debt of the country – banks are involved with rate hovering at minus 3%

Health condition of the system has improved.

The four banks have a liquidity around 70% (check this figure).

These four banks have undertaken to readjust for financial stability in agreement with the EU: e.g. number of branches, number of employees, foreign assets, ordinary and extraordinary numerations.

Problem the banks - they have a very high percentage of bad debts. We have not seen the final point in how this situation can be rectified.

On the one hand, the banks continue with a restructuring towards a healthy balance, but on the other hand most of those who go to the banks for loans are high risked business people who are not the ideal clients.

At governmental level, there is talk about 77 Billion Euros in bad loans and therefore a very unstable condition which could be ruinous if made even more unstable.

Restructuring should be take care of people who suffered a lot and should have a second chance, but must be careful not to subsidize bad loans and unhealthy activities. Channel money only to healthy activities.

Show prudence.

An additional problem which banks face is the cost of spread costs.

553 base units in terms of spreads.

The Greek system depends on the Euro system for liquidity. Dependency in terms of 30 Trillion (?)

Triple A – grading will liberate some deposits which are hesitant to make direct investments.

All this through the ECB.

We need to reduce uncertainties.

Following factors help: political stability, exit from public debt repayment scheme, government remains focused on reform program to improve structure of public administration and of the market. All this is necessary to ensure high sustainable conditions for growth.

It is the time we step out of the automatic pilot and we try to land the plane.

We have to work to a visionary Marshall Plan.


Kerasina Raftopoulou, Former Head of Enterprises Division in Agricultural Bank, Member of the Secretariat of the Economic Policy Department of SYRIZA and Head of Finance sector.

Is there really a change in the political climate and are we really exiting the crisis?

Bank restructuring and credit extension – we will necessarily talk about this in the context of a persisting problem of unemployment, low level of GDP, and this in relation to the following two factors:

Banking sector needs restructuring, but to do so it has been recapitalized by the Greek state. As a result we have now four banks. Out of this follows, if entrepreneurs (and banks are enterprises) are being paid, then those who pay (i.e. the tax payers), they should get a return. But we have a drop in deposits – 161 Billion down from 260 billions.

There is another worrying trend: after 12 month of financing the balance of the companies, we know also that credit extension is negative (95%).

Oligopoly condition prevail now which eliminate alternative options to deal with the crisis.

The over concentration is a problem since at risk are companies with payment delays. That is one of the key problems (and affects as well the relation of SMEs to banks).

Study by Bank of America – figures quite accurate.

Banks put pressure on borrowers to have collateral coverages.

Thus Greek banks have difficulties in financing Greek entrepreneurs, so again another reason to take on collateral coverage.

High interest rates – the interest rate margins has reached 4% whereas in other countries they are around 1 to 11/5 %

Minister of Development stated that subsidies should be given to young entrepreneurs, but why not reduce the interest rates for all? Also she does not understand why those who cannot pay, have to pay more. It should apply to all companies.

Let us see how Greek banks are financed: short term lending – bonds are evaluated by rating agencies – well below normal value -Draghi decided to do something about this for it seems that panic has gripped him.

We have March 15, 2015 ahead of us since then the ECB will not accept any more Greek banks as collateral for Greek state deficits. Greek banks have after that date not the sources to obtain bonds. The government can obtain from the four banks something, but it will be very limited.

Hair cut for Greek and Cypriot banks has to be altered.

Problem is linked to the austerity program.

Over debt poses a series of problems including letters of credits.

I leave you to judge what Draghi will do.

I wish to repeat what Tsipras says: need a development bank to have more leeway.

Mediate between borrowers and lenders.

Deal with over indebtedness of companies – presently banks will decide who is a viable company, who is not but this may be only due to the client having a good collateral and who is also willing to pay back in time. (Implies what is good to the bank is not good for the system) –  but what happens with fore closure and to those companies which go bankrupt.



Dealing with debts is never easy. Already Jeffrey Sachs advised some very fine financial engineering will be needed, if different kinds of debts are handled in a way that they can be resolved in a good way. He even cautioned this might not be a simple method but would require getting literally 'dirty', politically speaking. He had in mind the example of how the City of Detroit has been salvaged more or less. (see Getting Greece back to economic growth - advise by Jeffrey Sachs)

From quite another angle, it has to be added that no good solutions are brought about if practical and ethical principle are ignored. Ideally the handling of debt should be done without burdening the overall economy, and more importantly society. Obviously even when leaving Idealism aside, finding good solutions has not been the case in Greece. To seek relief from the outstanding debt, banks were rescued with tax payers having to shoulder the major burden. They have to face not only an increase in all kinds of taxes, but they suffer as well cut backs in wages and reductions in their pensions.

However, the Economic Forum never addressed the social injustices from this ethical standpoint or from a sense for social justice. Rather all of this was covered up by use of one single term, namely 'sacrifices' which the people have made during the last five years. Instead, the focus was on the following:

Influence of the ECB, central monetary policies and current circumstances in the EU / global economy:

Latest news (29.10.2014)

The Greek newspaper Kathimerini (English edition) reports that Greek banks have passed the stress test made by the European Central Bank. Consequently they can focus on putting money back into the Greek economy and deal with bad loans. It is said of top of the fact that the banks had no 'capital requirements', there was revealed as a matter of fact a capital surplus of 4.5 billon euros. Since this did not factor in the so-called deferred tax credits, the banks' capital bases shall be increased by another 2.5 billion euros. While the bankers feel vindicated for the strategy they had adopted, Yannis Stournaras, now no longer Minister of Finance but Governor of the Bank of Greece, cautioned, insofar as the positive news does not mean "automatically reality" and that there is no room for 'complacency'. As a matter of fact, he needed to point that the good results are to the dynamic model which was used to make the calculations and predictions. The model includes statements about has to be done in the next few months. He is quoted as saying, that "it is therefore crucial that banks implement their restructuring plans as submitted to and approved by the European Commission, and that the country remains politically and economically stable." (2)





 1. Benoît Cœuré (2014) „Structural reforms: learning the right lessons from the crisis“ Keynote speech as member of the Executive Board of the ECB, at Economic conference, Latvijas Banka, Riga, 17 October 2014 http://www.ecb.europa.eu/press/key/date/2014/html/sp141017.en.html

2. Yiannis Papadoyiannis (2014) „Banks can focus on future after successful stress tests“. Kathimerini. Tuesday, 28.10.2014 http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_28/10/2014_544112


^ Top

« Obstacles and incentives for Entrepreneurship: The case of taxation policy and Bureaucracy Red Tape | Reflections of the Economic Forum »