What Should Be Done with Greek Banks to Help the Country Return to a Path of Growth?

The recapitalization of Greek banks is perhaps the most critical problem for the Greek state today. Despite direct cash infusions to Greek banks that have so far exceeded €45 billion, with corresponding guarantees of around €130 billion, credit expansion has failed to pick up. There are two obvious reasons for this failure: first, the massive exodus of deposits since 2010; and second, the continuous recession—mainly the product of strongly deflationary policies dictated by international lenders.

 

Following the 2012–13 recapitalization, creditors allowed the old, now minority, shareholders and incumbent management (regardless of culpability) to retain effective control of the banks—a decision that did not conform to accepted international practices. Sitting on a ticking time bomb of nonperforming loans (NPLs), Greek banks, rather than adopting the measures necessary to restructure their portfolios, cut back sharply on lending, while the country’s economy continued to shrink.

 

The obvious way to rehabilitate Greek banking following the new round of recapitalization scheduled for later this year is the establishment of a “bad bank” that can assume responsibility for the NPL workouts, manage the loans, and in some cases hold them to maturity and turn them around. This would allow Greek banks to make new and carefully underwritten loans, resulting in a much-needed expansion of the credit supply. Sound bank recapitalization with concurrent avoidance of any creditor bail-in could help the Greek banking sector return to financial health—and would be an effective first step in returning the country to the path of growth.

Comments

Mike Haluska Added Oct 11, 2017 - 11:31am
NOTHING should be done unless the Greek government gets its house in order.  Over half the population of Greece is riding the "government wagon" while fewer and fewer working Greeks are stupid enough to continue pulling the wagon! 
John G Added Oct 11, 2017 - 3:46pm
Until Greece leaves the Euro it's all academic.
Tsipras was the Judas that killed off the already mortally wounded Greece.
Greece is a colony of the Troika. 
When one looks at what the EU has done to Greece and then hears these Bremainers in the UK waxing lyrical about rights, it boggles the mind.
John G Added Oct 11, 2017 - 6:26pm
Oh and Greek banks are not lending not because of existing bad loans but because there are no qualified borrowers.
That's down to lack of demand and no prospects of future demand caused by the austerity policies in place.
Economies run on sales. No income, no spending.
Arrbyy Added Oct 11, 2017 - 8:13pm
I'm not racist, so I won't be joining the gang that likes to bash Greeks for being Greeks. That doesn't mean that regular Greeks don't have some responsibility for their own situation. Caring is knowing. Regular people everywhere (victims of gangster Corporatocracy) don't care enough to know. People have been dumbed down by the police state and its allied institutions. Instead of reading, online or books, people are watching sports, playing video games, chasing Pokemon monsters or something else. And there's no law against it and shouldn't be. But there's always consequences.
 
Greeks haven't been, in my opinion, properly informed, nor have they informed and educated themselves. Which led to them not wanting what was in their best interests (materially and spiritually), namely a departure from the neoconservative, neoliberal EU, which, recall, stood by (and behind the scenes, as Michael Parenti points out, aided the U.S. in its murderous bombing campaign) while NATO destroyed relatively civilized Yugoslavia. Greeks insisted that they stay in the EU, but also insisted that the EU behave and stop abusing them (Germany and France mainly). Ha!
 
In their defence, regular Greeks couldn't do anything about traitorous Alexis Tsipras. They told him what they wanted (no more austerity and a refusal to help Europe destroy Greece), when he asked, and then he turned around and gave them the finger, soon after which he went to Israel to worship Netanyahu, revealing what he was really made of.
 
The EU - especially as its leaders enable NATO, which is trying to bring upon humankind a nuclear winter (and would, but for the fact that God is in the background and has other ideas about how things will play out), a gigantic crime - needs to simply dissolve.
John G Added Oct 11, 2017 - 10:32pm
I'm not racist, so I won't be joining the gang that likes to bash Greeks for being Greeks.
Most of the commentariat here would though. Haluska wouldn't understand the macroeconomics of it in a dozen of his lifetimes.
Same for most of the posters here.
The Greeks were sold a pup when they were induced (like all Europeans) into giving up their sovereignty by joining the Eurozone.
The maths of the euro just don't work. It is designed on the basis of entirely bogus assumptions about economics.
Cannot work. Ever.
 
 
Saint George Added Oct 12, 2017 - 3:59am
Economies run on sales. No income, no spending.
 
Wrong, zombunist. Economies run on PRODUCTIVITY, otherwise there's nothing to sell. Get it? Make something first; THEN sell it.
 
Dumbshit loaf of rat-turd.
John G Added Oct 12, 2017 - 4:34am
 
Dumbshit loaf of rat-turd.
 
Doing a great job as Autumn's marketing guru.
 
John G Added Oct 12, 2017 - 5:03am
Economies run on PRODUCTIVITY, otherwise there's nothing to sell.
Can't sell nothin' to people with no money, slack jaw. Economies run on sales.
John G Added Oct 12, 2017 - 9:18pm
According to a study conducted by the OECD, the Greek worker puts in more hours per week than any other European, and the "industrious" Germans, the least.
John G Added Oct 13, 2017 - 2:40am
Survey shows crisis-ridden Greek households cut even on milk and bread – which reports the results of a Nielsen survey of Greek household spending in the first half of 2017.
 
1. Consumption spending for essential goods (milk, bread, etc) have fallen.
2. Spending on milk fell 8.6 per cent over that time.
3. Spending on bread fell by 5.3 per cent.
4. Alcohol sales dropped.
5. Retail sales fell overall by 1.1 per cent.
6. Personal care products fell by 4.4 per cent.
Since 2009, sales of food in Greece have fallen by 18 per cent.
John G Added Oct 13, 2017 - 2:41am
Future life expectancy in 35 industrialised countries: projections with a Bayesian model ensemble – by researchers at Imperial College, London.
The study found that:
1. “Life expectancy is projected to increase in all 35 countries”.
2. “Of the countries studied, the USA, Japan, Sweden, Greece, Macedonia, and Serbia have some of the lowest projected life expectancy gains for both men and women.”
The first-named author told the media that (Source):

In Greece in recent years there has been an increase in mortality at certain ages and this is probably related to the difficult economic situation in the country. The result was a slowing down of the life expectancy rate, which would remain low under these conditions …
The impact of the crisis is significant, as Greece has drastically cut spending on health. Countries with a rapid increase in life expectancy are those with strong health systems and healthcare and public health successes, such as the prognosis and treatment of chronic diseases or the reduction of obesity and smoking.
John G Added Oct 13, 2017 - 2:43am
I don't think bank capitalisation is Greece's biggest problem. 
George N Romey Added Oct 13, 2017 - 7:04am
A total jubilee for Greece.  It would teach the greedy bankers quite harsh if they were forced into massive write downs.