Eurogroup to vote on sep­a­rate fund­ing for credit sec­tor re­cap

Kathimerini English - - Front Page - BY NIKOS CHRYSOLORAS

BRUS­SELS – Greece and Cyprus are hop­ing to reap sig­nif­i­cant ben­e­fits from to­day’s Eurogroup meet­ing of eu­ro­zone fi­nance min­is­ters as it is likely to dis­cuss and maybe de­cide on the pos­si­bil­ity of the di­rect re­cap­i­tal­iza­tion of eu­ro­zone banks from the Euro­pean Sta­bil­ity Mech­a­nism (ESM) with­out that money be­ing con­sid­ered part of their coun­tries’ debt.

This is an in­stru­ment that would be­come avail­able from fall 2014, when the sin­gle mon­i­tor­ing mech­a­nism for Euro­pean banks will be in full op­er­a­tion un­der the con­trol of the Euro­pean Cen­tral Bank and by which time the com­plete leg­is­la­tion pack­age on the eu­ro­zone bank­ing union will have also been voted on.

What is cru­cially at stake for Athens and Ni­cosia is whether the op­tion will also ap­ply retroac­tively – i.e. for coun­tries that have al­ready en­tered a stream­lin­ing pro­gram and have bor­rowed funds to re­cap­i­tal­ize their banks. It is likely, though by no means cer­tain yet, that the Eurogroup will ap­prove that retroac­tive el­e­ment in prin­ci­ple.

How­ever, eu­ro­zone sources said yes­ter­day that this will not have a full retroac­tive ap­pli­ca­tion,

such as Eurobank, which have passed to the state, could have the lion’s share of their re­cap­i­tal­iza­tion cov­ered by the Euro­pean Sta­bil­ity Mech­a­nism if the Eurogroup ap­proves the mea­sure to­day. which would have wiped 50 bil­lion eu­ros off Greece’s debt. In­stead, they say, each bank’s re­quest for the use of that mech­a­nism will be ex­am­ined sep­a­rately and, if ap­proved, its home coun­try would be ex­pected to con­trib­ute be­tween 10 and 20 per­cent of the funds re­quired. The rest would be cov­ered by the ESM, which would ac­quire an equiv­a­lent stake in each lender’s share cap­i­tal, thereby buy­ing it from the state and there­fore re­duc­ing the state debt ac­cord­ingly.

The ESM would then ap­point a rep­re­sen­ta­tive to each bank’s board, gain­ing a de­ci­sive role in all strate­gic de­ci­sions, and when mar­ket con­di­tions per­mit, ESM will sell its stake to pri­vate in­vestors.

Such re­quests will be ac­cepted from fall 2014 at the ear­li­est. If the Greek state is still the main share­holder of the sys­temic banks through the Hel­lenic Fi­nan­cial Sta­bil­ity Fund (HFSF), it will need to prove that it can­not bear the weight of the re­cap­i­tal­iza­tion by it­self. The to­tal funds for the di­rect re­cap­i­tal­iza­tion of banks will range be­tween 50 and 70 bil­lion eu­ros, with the most likely amount be­ing 60 bil­lion eu­ros.

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