EU's Dombrovskis Says Greek Rescue, Bank Review Need Progress

European Commission Vice President Valdis Dombrovskis.

European Commission Vice President Valdis Dombrovskis.

Photographer: Jasper Juinen/Bloomberg
  • Greek rescue `more or less on track' as progress report looms
  • Tsipras government needs to stick to commitments: Dombrovskis

Greece’s bank rescue and aid program have little room for delay as creditors move toward the first review of the country’s compliance with its bailout terms, European Commission Vice President Valdis Dombrovskis said.

The review of Greece’s four biggest banks is linked to the country’s 86 billion-euro ($97 billion) aid program to boost confidence that Prime Minister Alexis Tsipras will follow through on economic reforms, Dombrovskis said in an interview Monday in Brussels. As a result, he said, it’s premature to discuss separating the banking milestones from the rescue goals.

“We can always look at technical solutions, but it’s important to have progress as regards the whole program,” said Dombrovskis, whose portfolio includes the 19-nation euro area. Greece needs to rebuild trust with its euro-area partners “and in many countries this first review is seen as an important indicator,” he said.

Greece faces a tight timeline under the terms of its third bailout, hashed out in August after months of contentious talks in Brussels. Tsipras needs to cut spending, enact pension and tax changes and agree with creditor nations and the International Monetary Fund on a long-term debt strategy.

Bank Aid

The aid package allocates as much as 25 billion euros for National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE. For full access to the bank aid, euro-area finance ministers need to approve the release of 15 billion euros by Nov. 15, so it can join 10 billion euros sitting in a segregated account at the European Stability Mechanism firewall fund.

The European Central Bank is conducting an asset quality review and stress test to determine what the banks need. The National Bank of Greece said Tuesday in an Athens bourse filing that “it is examining, as deemed appropriate, a range of alternative proposals to meet potential recapitalization needs,” in view of the asset quality review results and ECB stress tests.

Greek bank shares extended losses on Tuesday after falling more than 15 percent on Monday, amid speculation that the capital shortfall to be identified in ECB’s review and stress test will wipe out much of their existing equity. Banks have lost over 70 percent of their market value since Greek Prime Minister Alexis Tsipras imposed capital controls, in June. 

The money for the banks is tied to the overall program review that’s expected to take place in October and November, though no exact date has been set.

One solution might be to accelerate the schedule for the financial part of that first program review, a euro-area official said earlier this month. Greece’s creditors have made it clear that they won’t release bailout funds unless Tsipras’s government meets the conditions spelled out in the bailout deal.

“Currently, I would say that things are more or less on track, so it’s important that Greek authorities stick with their commitments,” said Dombrovskis, who plans to hold talks in Greece on the rescue effort in the second half of October. “Intensive work” is under way to work with the Greek government and help it meet its milestones, he said.

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