With Greece celebrating a deal with international lenders that could open the door for long-delayed installments and critical cash, there came a warning that the country’s banks need more money because of bad loans and over the size of a primary surplus.
That came from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) after a seven-month review of Greece’s books and tough negotiations over a series of unfinished reforms. Most of the details of the agreement with Greece weren’t revealed.
“The mission and the authorities agreed that the economy is beginning to stabilize and is poised for a gradual resumption of growth, broadly in line with our previous projections,” the Troika said in a statement issued some 30 hours after the Greek government had announced the conclusion of the review. “Prices are adjusting and inflation remains well below the euro area average.”
Non-performing loans (NPLS) have passed 40 percent in a number of banks as Greeks buried by harsh austerity measures insisted upon by the Troika are unable to pay their loans, credit cards and mortgages, including the ruling New Democracy Conservatives of Prime Minister Antonis Samaras and his coalition partner, the PASOK Socialists, who owe 250 million euros ($344.8 million).
Greece has already given the banks 41 billion euros ($56.5 billion) but the National Bank of Greece, using stress tests from Black Rock Solutions, estimated they need at least 6.4 billion euros ($8.82 billion) more, while the Troika believes the figure will be much higher.
“According to the assessment of the mission teams, there are upside risks to the capital needs estimates, in particular, if the authorities and banks do not urgently and efficiently address the high level of nonperforming loans,” Greece’s lenders said.
“Swift recapitalization of banks will strengthen their balance sheets. The Bank of Greece should remain vigilant in its oversight of the banking system and proceed forcefully in requiring banks to quickly work out their large stock of problem assets.”
The Troika also called for a swifter private sector debt resolution process and insisted that the Hellenic Financial Stability Fund should maintain its current capital buffer “to meet future adverse contingencies.”
Just how big of a primary surplus Greece will show also was being questioned as estimates have ranged from 1.5-2.9 billion euros ($2.06-$4 billion) as Samaras has vowed to return much of it to low-income pensioners, the military, police and emergency services, although far less than the 70 percent he promised.
Without identifying a specific figure, the Troika acknowledged that Greece had exceeded its primary surplus target for 2013 but added that this was partly achieved due to one-off measures that would not apply this year.
“Preliminary estimates suggest the 2013 primary balance target was met with a substantial margin,” said the troika. “While only a small portion of this over-performance will carry over into 2014, we believe that the 2014 fiscal targets will also be met, taking into account the measures being implemented and planned.”
The lenders’ statement also indicated that a solidarity tax on incomes introduced in 2011 for what was supposed to be for one year should go on until at least 2015 to help the government meet its target of producing a 3 percent of GDP surplus by then, although critics have said the tax seems set to be permanent despite the burden it has put on property owners and property values.
The Troika, however, seemed satisfied in terms of the country’s efforts on structural reforms. “The authorities are making progress on structural reforms to improve the growth potential and flexibility of the Greek economy and help create a fairer and more supportive environment for investment, growth, and job creation.”
In addition, Greece’s lenders gave an indication of the liberalization measures, as recommended by the Organization for Economic Cooperation and Development (OECD), that the coalition government has agreed to adopt.
“They are committed to implementing a very large majority of product market reforms identified by the recent OECD study in the areas of food processing, tourism, building materials, and retail; to taking concrete measures to liberalize the transport and rental markets and open up closed professions; and to reducing social security contribution rates and nuisance taxes,” the statement said.
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