Greece plans to provide as much as 9 billion euros in state guarantees to help its banks reduce a mountain of soured debt weighing on their balance sheets, Bloomberg and Handelsblatt report. The money will be given from the “buffer” of nearly 40 billion euros from taxpayers money. Greek banks have already been recapitalized twice.
“The Greek government intends to use a significant portion of the €37 billion “buffer” that was built with taxpayers’ money as a guarantee for banks to allow the country to borrow from markets,” notes Greek news website tvxs.gr.
Citing people “with knowledge of the matter,” Bloomberg wrote among others on the plan Finance Minister Christos Staikouras has allegedly called “Project Hercules“:
The initiative, similar to a successful program used in Italy, depends on antitrust officials in Europe ruling that it doesn’t constitute illegal state aid.
A decision by the European Commission is expected over the next few weeks, the people said, asking not to be identified because the discussions are private.
Banks in Greece, Europe’s most indebted country, hold some 75 billion euros in soured debt, boosting costs for provisions and restricting their ability to generate new loans. The guarantee program, known as an asset protection scheme, could cut that down by at least 20 billion euros, the government estimated when the plan was first floated about a year ago.
Now it’s forecast that through the APS, which will be known as Project Hercules, lenders could reduce their bad loans by 30 billion euros, a person familiar with the matter said.
The program will allow lenders to use government guarantees to back the securitization of bad-loan portfolios, according to the people. The soured debt will be transferred to a special purpose vehicle that will issue senior, mezzanine and junior bonds. The senior debt will be guaranteed by the government and will remain on the banks’ books.
The EU Commission is in contact with Greek authorities on an asset protection scheme, a commission spokesman said without elaborating. A Greek government official declined to comment.
While the Greek proposal was initiated by the previous government, Kyriakos Mitsotakis, who took over as prime minister two months ago, has made it a priority to finalize negotiations before a new European Commission assumes office in November.
In the same wave length is also the article published by German economic daily Handelsblatt.
PS The Greek government would do right to allocate funds from the buffer also for education and especially for health and not leave cancer patients going without chemotherapy due to lack of funds in public hospitals.