Wednesday, April 7, 2010

Greek banks plead for more aid in debt crisis

From an article on Reuters today:

(Reuters) - Greek banks, hit by a series of credit rating downgrades linked to the country's debt crisis, have asked the government for more financial support, Finance Minister George Papaconstantinou said on Wednesday.

"The banks have asked to use the remaining funds of the support plan," he told reporters, referring to a package first agreed by the previous conservative government in 2008.

About 17 billion euros ($22.72 billion), mainly in state guarantees, remain in the 28 billion euro support scheme, launched to help Greek lenders cope with the global credit crisis.

The Central Bank of Greece said non-performing loans in the banking system rose further in the last quarter of 2009, bringing the full-year ratio to 7.7 percent.

The banks' plea for extra help highlighted the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year, partly as a result of austerity measures imposed to slash a huge budget deficit.

IMF officials began talks in Athens on Wednesday on implementing the austerity plan, just as the latest market jitters over Greece's ability to manage its debt mountain eased slightly, despite uncertainty over a euro zone rescue plan.

The IMF proposed austerity plan will sink the Greek economy even further, putting more stress on bank assets. Banks failures will increase and that will precipitate bank runs.

Greece and all of the other countries in the Eurozone have no credible deposit insurance. Bank runs could easily spread from Greece to the rest of the weaker periphery and, ultimately, to the big economies of Germany and France. The dominoes will soon start falling.

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9 comments:

bubbleRefuge said...

FYI, Here's an interesting comment exchange from Warren's site on this trade. Sounds like a house of cards to me.

# Panayotis Says:
April 7th, 2010 at 7:37 pm

80% of Greek public debt is owned by foreign banks. Most Greek banks are in good shape with sufficient capital adequacy without much structured products and diversified extensively outside of Greece. The 17 billion is more than sufficient to cover any contingencies. Furthermore, the ECB has pledged to continue accepting Greek debt as collateral for repurchase agreements for an indefinite period. The Greek private sector has very low debt ratio(Less than 100%) when in other European countries is a multiple of that. The Greek private sector has over 300 billion euros invested abroad and Greek domestic euro deposita are 90% of GNP. Actually, the incompetent government should first restructure the public debt with a haircut and extend it at pre crisis rates. Then it should start a shift towards domestic borrowing. Of course, my favorite policy is to switch back to the drachma and convert all public debt in the local currency and let the Northern European bail out their own greedy banks!!!

Reply
# warren mosler Says:
April 8th, 2010 at 1:44 am

if a run on the greek banks caused a funding problem the only guarantee depositors have is from the greek gov.

i am not saying the banks are insolvent. i am saying that if they do become insolvent the depositors are looking to the greek gov for payment.

and even if a greek bank has only 5% of assets in greek bonds, a default will put a large dent in that bank’s capital. and any further contraction in the economy can increase bank losses as well. not to mention a govt liquidity crisis spreading to other euro member nations as greek banks hold their securities as well

and not to mention that with greece facing current borrowing costs the interest costs alone make solvency problematic, which further drives up interest costs, etc.

Matt Franko said...

JC,
With that 3% of GDP fiscal defict limit there seems to be no way they will be able to get their Greek treasury to make depositors whole.

The Greek GDP is only $357B so 3% of that is $11B. Divided by their population of 11M is $1000 per person! so if a family of 4 has 4,000 in their bank account, if their Govt had to replace that with funds via fiscal transfer from Govt deposit insurance, that would take up the 3% Maastraict limit right there.

This whole system the Europeans have set up is a disaster. the macro numbers just dont seem to make any sense.
Resp,

Aquamelli said...

Hey Mike...

"What artificial lending standard are you talking about?"

hahahahaha jackass

bubbleRefuge said...

Matt, Isn't France already at 7% GDP debt ratio?

Matt Franko said...

JC,
Yes I think they all are in violation of the 3% so I guess it is becoming a matter of degrees.

Like Germany is saying "we are not violating as much as you are" or the equivalent.

If the EU just allows these violations to occur with impunity and the Greek debt is acceptable collateral for at least the next 2 years at the Bank of Greece, I submit Greece is operationally a currency issuer. I dont know why the Greek govt cannot manage this situation better if you look at it this way....

You know, in Greece that 3% only represents a $1,000 per capita per year investment that their federal govt can make on behalf of their citizens, this seems very deficient when you think of things like roads, ferrys, defense/security, education, medical, airports, etc...$1,000 per year? it almost seems like an absurdly small amount, why would they sign up for that?

Resp,

bubbleRefuge said...

You know, in Greece that 3% only represents a $1,000 per capita per year investment that their federal govt can make on behalf of their citizens, Great way to look at it.

Matt Franko said...

JC,
Ive thought about this some more.

If you are a manufacturer like Germany, you can produce more GDP per capita with machines running, sutomation, etc..Germany can really pound out the GDP as a manufacturer. While Greece is mostly services/agriculture/tourism etc..these sectors by definition cannot produce as much GDP per capita. So the 3% of GDP number for Germans is more than $1,000 per person as germany produces more GDP percapita by definition. Germans are advantaged in this way within EU.

Greece should just get out of this "screw deal".
Resp,

googleheim said...

like I said.

the german's have rigged the creation of the euro to their advantage.

remember that 1 relatively NEW german bank is really 2 NAZI banks that consolidated to lose the NAZI name and get a fresh start.

the germans and possibly the scandinavians want to keep their vacation spot ( Greece ) as cheap and poor as possible.

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