Martin Bixel - 27 Feb - 0 Comments
Doubts about the solvency of Greek banks are growing by the day, with fears that some may never reopen, the head of Germany’s central bank said yesterday.
Ratings agencies have downgraded the four biggest banks in recent days, warning that defaults are inevitable without further urgent help from the European Union. Officials in Brussels said that some large Greek banks may have to be taken over by stronger rivals as part of a restructuring that would follow any bailout of the country.
The blueprint for Greece is Cyprus, where the second-largest bank, Laiki, was closed down during the financial crisis in 2013, and deposits of more than €100,000 seized to form a “bad bank” to dispose of its liabilities. Deposits under €100,000 were merged with the Bank of Cyprus.
Jens Weidmann, head of the Bundesbank, said that the European Central Bank (ECB) should not provide any more emergency liquidity to Greece. Any further aid should be put up directly by governments, he said, to preserve the integrity of the ECB which, in terms of its constitution, is prohibited from propping up insolvent banks. The ECB is at present keeping Greek banks afloat with Emergency Liquidity Assistance (ELA), although it has frozen the total amount of aid at €89 billion and toughened the conditions. ELA is defined as support given by eurozone national central banks in “exceptional circumstances and on a case-by-case basis to temporarily illiquid institutions and markets”.
The problem was that it was difficult to tell the difference between “illiquidity and insolvency”, Mr Weidmann told a conference in Frankfurt. In the case of Greece, “doubts about the solvency of banks are legitimate and rising by the day”, he said. “It needs to be crystal clear that responsibility for further developments in Greece and for any decisions on transferring financial resources lies with the Greek government and the countries providing assistance, not the ECB governing council. Central banks need to show where their limits lie.” European leaders will meet on Sunday in a last-ditch attempt to salvage an agreement with Greece, after months of fruitless talks which have taken the country to the brink of leaving the euro.
Some Greek banks have been so damaged by the chaotic situation that they may have to be closed and merged with stronger rivals, an official told Reuters. He said that the big four — National Bank of Greece, Eurobank, Piraeus and Alpha Bank — might be reduced to two; a measure that would meet fierce resistance. “The Greek economy is in ruins. That means the banks need a restart,” said the official, adding that prompt action was necessary after any bailout by the eurozone. “Cyprus could be a role model.”