Greece Races to Finish Aid Review as Bank Restructuring Looms

  • Foreclosure protection remains sticking point in talks
  • Euro-area finance ministers to assess Greek compliance Nov. 9

As Greece seeks to unlock rescue funds and its banks seek new capital for the second time in 18 months, the nation remains at loggerheads with its creditors over issues ranging from household insolvency law to the pricing of generic drugs, two government officials told reporters in Athens on Friday.

Euro-area finance ministers will meet on Nov. 9 to review the implementation of Greece’s latest bailout program, including dozens of measures demanded in exchange for the disbursement of a 2 billion-euro ($2.2 billion) portion of the aid package, and an additional 10 billion-euro backstop that will be used for the recapitalization of banks. Failure to complete the review could put the solvency of the sovereign and its lenders in doubt.

Both sides cited developments in negotiations, with the Greek officials, who asked not to be named as talks are ongoing, telling reporters that a deal is still possible before Monday’s Eurogroup meeting.

“Progress is being made every day,” Annika Breidthardt, European Commission spokeswoman, told reporters in Brussels. “Once the assessment is concluded it will be for the member states to take a decision on the next disbursement and we see the Eurogroup of Monday as an opportunity to review progress.”

Foreclosure Protection

One main sticking point in negotiations is the minimum value of a house that can be foreclosed on, with the Greek government seeking a level that would shield about 70 percent of homeowners, according to the officials. Auditors from the International Monetary Fund, the European Commission, the European Stability Mechanism and the European Central Bank say the Greek limit is overly generous and are seeking a stricter framework that would only cover the most vulnerable.

“A successful completion of the first review will have multiplier effects on attracting foreign investment and restoring business confidence,” analysts at Alpha Bank AE led by Panayotis Kapopoulos wrote in their weekly report to clients on Friday. “It is also a precondition for the participation of private investors in the process of recapitalizing Greek banks.”

The country’s lenders are seeking to raise at least 4.4 billion euros in fresh capital through share offerings and debt swaps, after the ECB identified a 14.4 billion-euro gap in their books. The remainder of the hole is to be covered by the state-owned Hellenic Financial Stability Fund, with money earmarked for capital injections under Greece’s latest bailout.

Banks’ Book-Building

Piraeus Bank SA has initiated a book-building process, and investors are showing considerable interest, according to another Greek official. The lender, which was due to complete the sale procedure on Friday, may extend it until Monday or later, as investors want to assess whether the government will make any progress in meeting the Eurogroup’s demands, the official said.

Any disbursement of bank-recapitalization funds requires a number of financial-industry rule changes in Greece, according to a European Union official, who said these reforms are covered by two sets of “milestones” that the country must reach.

“There is a link with the second package of prior actions because that deals with the governance of the banks,” Dutch Finance Minister Jeroen Dijsselbloem said on Thursday. “We’ve always said, we are going to pay out money, 10 billion or just 5 billion, only when the governance has been dealt with,” said Dijsselbloem, who also chairs the Eurogroup.

Athens, however, isn’t willing to reach a compromise with adverse affects for social cohesion and public revenue, even if that means risking a temporary deadlock in Monday’s meeting, the Greek officials told reporters. Prime Minister Alexis Tsipras intends to escalate the matter of protection from foreclosures to political negotiations, if needed, while the government won’t allow the sale of distressed mortgages to foreign hedge funds, according to the officials.

In addition to dealing with sour loans, thorny issues that still need to be resolved include the pricing of generic drugs and measures offsetting an exemption of private schools from sales tax. Creditors also ask that taxpayers who miss current tax payments to become automatically ineligible for a plan that allows Greeks to repay overdue taxes and social contributions in 100 monthly installments, the officials said. The fact that these issues remain open shouldn’t derail the recapitalization process, according to the officials.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE