Non-Performing Loans in Greece: As delicate as it gets
by Dimitris Rapidis and Jose Pereira
The story goes back in 2012 and the first evictions attempted by local courts in Greece for overdue loans in the banks. Since then the Greek governments have been struggling to find a viable solution to address this issue. The PSI supposedly came to loosen up the burdens of the banking system. but all it did was nothing more than transferring the debt from one hand to another. The public funds assumed the burden and then taxpayers were called to sustain a problematic system that reproduces debt. A really big party of property loans was not served for years, mounting the total cost of non-performing loans in the banking system and contributing to the tough talks the Greek government is having this week with the institutions' "quartet".
Creditors know very well that the situation is worse than ever before and that systemic banks might need generous recapitalization. But this recapitalization will not go for nothing. Non-performing loans, sharing €19 billion of the total €100 billion approximately of NPLs (i.e. around 20%) should be cut significantly or people should get evicted so that properties can go to the banks and then bought out by distress funds in bargain prices. In such a scenario, the devaluation of the Greek real estate market would be inevitable.
Creditors are tough in negotiations, focusing only in numbers. The Greek government insists that it is impossible to squeeze further down the criteria for non-protection as such a development would spark massive social unrest. The reasoning of both sides should be further explained: Creditors know that they have been pressuring Greek governments since 2009 to adopt a land registry that would assist in the proper evaluation of property assets and prices. Previous governments avoided doing so for many reasons, mainly for controlling the prices in the market, thus defining the property tax according to the needs and goals of the annual state budget.
On the other side , creditors should acknowledge that under the current economic circumstances, the continuous tax hikes, with a domestic market completely dried out, it is impossible to lower the criteria for protecting the first property and push for the eviction of thousands of people. Numbers count for decisions, but social balances play a much more definite role. The negotiations have to last longer and the tight schedule should be re-organized. The collateral damage of a hasty, myopic decision, would be a decisive blow against the efforts of the Greek government and against the fragile social cohesion in Greece.
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Dimitris Rapidis is Director at Bridging Europe. Jose Pereira is Policy Analyst at Bridging Europe.
October 23, 2015