Bank of Greece Governor Yannis Stournaras has called for a systemic solution to the looming problem of Greek banks’ huge amount of non-performing loans (NPLs).

In an interview with the local Kriti TV station, Stournaras categorically ruled out any prospect of a bank bail-in and said that there must be a trilateral cooperation of the country’s four systemic banks, the Greek government, and the bank of Greece to gradually alleviate the crushing burden of NPLs on banks.

Bad bank for NPLs, EU deposits guarantee

“There is no such possibility [of a bank bail-in]. It did not happen even at the height of the crisis, so you can understand that there is no need for it now…Action must be taken by the banks, by the Bank of Greece, and by the government to shake off the burden of NPLs,” Greece’s central banker said,

“We have advanced a systemic solution because banks with their ongoing efforts can reduce the burden, but if we really want to rid ourselves of them [NPLs] in the next two years we need a systemic solution, which is to say a bad bank to which one can transfer NPLs without creating moral hazards,” Stournaras said.

NPL plan needed in European South

As far as the broader European framework is concerned, Stouranaras said that NPLs must be reduced in the southern EU-member states and that the northern EU member-states should consent to a broad scheme of bank deposit guarantees.

Fiscal discipline needed

Stournaras underlined that fiscal policy must be oriented toward lowering the national debt.

“In a country with a debt of 180 percent of GDP, you cannot opt for policies that will increase the debt, but rather you must move to decrease it. Beyond what member-states do, the eurozone must centrally advance such policies,” he said.

“Now that we have an improvement in the terms of borrowing for the Greek state, one should expect an improvement of the terms of borrowing for Greek banks.  We may now have fewer banks, but they are stronger and the future belongs to them,” Stournaras declared.

Politicians to blame for crisis, not banks

Stournaras noted the problem of high taxes in Greece and said they must be lowered with a fiscal policy mix that is growth-friendly.

That would appear to be a warning against political promises of tax cuts that are not backed up with a rise in GDP that can cover them.

Indeed, Stournaras indicated that the public sector (big spending) was to blame for the crisis and not banks [even though they were repeatedly bailed out by the Greek taxpayer].

“In Greece, the crisis was not triggered by the banking sector. The banks paid for the crisis. Still, we did the right thing. The good thing is that even those who in the past used to shout took measures and they too made a positive contribution,” Stournaras said in what appeared to be a very rare instance of praise for the outgoing government.

IMF: ‘No one is infallible’, austerity excessive

While noting the IMF’s wrong projections and prescriptions for the Greek economy, Stournaras concluded that it made a crucial contribution to the Greek programme.

“No one is infallible. We all make mistakes and the IMF did too. Certainly, its technical know-how and contribution was decisive, because European countries at the time wanted the IMF to be part of the solution of the problem,’ he noted.

“If it did something wrong, I believe it was its excessive insistence on austerity policies.”




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