How and when can the Greek banks support a Grecovery?

Yesterday saw something of a misfire for the monetary policy Bazooka of Mario Draghi and the European Central Bank. It was also a misfire for the Financial Times which put out an incorrect announcement five minutes early which begs a question as you see the ECB has repeated the mistake on its website.

the deposit facility will remain unchanged…… -0.2%

It sort of symbolised the day and something must have been in the air as agency after agency made mistakes. I have not seen anything like it since the 1990s when one news agency declared a German interest rate rise as another declared a cut and bedlam ensued! Just for clarity the deposit rate was reduced to -0.3% from December 9th. In terms of consequences well the Euro shot higher to 1.09, Euro area bond markets plummeted just as Mario was giving himself the credit for them rising, and equity markets fell too for a financial market clean sweep.

However there was quite a bit of news relating to the relationship between the ECB and Greece that slipped to some extent under the radar. Indeed Deputy Governor Vitor Constancio was woken up to give us some of the news which is a sign of the times. I use the number of times his afternoon nap is disturbed at ECB press conferences as a signal of trouble. If there is credit to be taken and easy results Mario holds sway if not what is often a hospital pass is swept out.

The Greek banks

The ECB has been supplying an extraordinary level of support for the Greek banking industry most publicly shown by the amount of Emergency Liquidity Assistance or ELA. From the Bank of Greece.

On 3 December 2015 the Governing Council of the ECB did not object to an ELA-ceiling for Greek banks of €77.9 billion, up to and including Wednesday, 16 December 2015, following a request by the Bank of Greece.

The reduction of €7.8 billion in the ceiling reflects an improvement of the liquidity situation of Greek banks amid a reduction of uncertainty and the stabilization of private sector deposits flows, as well as the progress achieved in the recapitalisation process of Greek banks.

Quite a chunky reduction in something which the ECB had been reducing in thin slivers up to then. Also we have learnt to take care with gifts being given to Greeks so let us investigate further as after all “stabilization of private sector deposits flows” is not a great vote of confidence if you think about it.


This for the Greek banks has been rather like London buses. Do not worry if you miss one as another will be along in a minute. The latest one has been particularly problematic as after all there are only so many times you can tell people that a corner has been turned! Yesterday saw one in particular hit hard. From Kathimerini.

with National Bank (of Greece) suffering a widely anticipated 30 percent limit-down upon its return to the market with its new shares after its capital increase.

All the banks required further dilution of existing shareholders and as you can see Natioanl Bank of Greece shareholders were hit heavily again. Also Piraeus bank needed the help of the European Stability Mechanism.

Piraeus Bank requires additional state aid through the Hellenic Financial Stability Fund (HFSF), which is funded by the ESM. The first disbursement of €2.72 billion on 1 December 2015 covers such capital needs.

This consequence of this lead to this at the ECB press conference yesterday.

some politicians in Greece say that the shareholdings of the Greek State and the pension funds in Greek banks have become worthless because of the recapitalisation method imposed by the institutions. What is your view?

Ouch! Here is Vitor’s reply.

So there is in that respect not a problem of valuation of those public shares.

As Greek banking shares fell by another 10% yesterday shareholders will not think that! But apparently.

So the statement, that those public investments are worthless, is not correct.

Why is that Vitor?

(Because they) will benefit from any profits or dividends that the banks will get in the future.

These profits will have to be extraordinary at National Bank of Greece were shares have just been issued at more than a 90% discount and this of course comes on top of many other falls and discounts in the Greek crisis.

Greek banking liquidity

The mainstream media has moved on as this is no longer a matter for the headlines but towards the end of last month the numbers posed a question?From Reuters.

Business and household deposits dropped by 590 million euros or 0.5 percent month-on-month to 121.08 billion euros ($129.1 billion), to their lowest level since March 2003.

Thus the overall situation if we look at 2015 so far is this.

Greece saw a 42 billion euro deposit outflow from December to July.

What we learn is that the money went but so far at least has not come back which is probably why we are seeing a barrage of rhetoric from EU officials that “haircuts” are off the agenda now.

Official Interest-Rates and Reality

You might think that is there is anywhere that the new even more negative deposit interest-rate of the ECB will apply it is Greece. After all it has so much negative GDP,prices, and wages. Yet in an echo of one of the opening themes of this blog back in 2009 take a look at reality. From the Bank of Greece.

The overall weighted average interest rate on all new loans to households and corporations increased by 29 basis points from the previous month to 5.08%.

Depositors can also get some interest albeit not much.

The overall weighted average interest rate on all new deposits decreased by 7 basis points, compared with the previous month, to 0.62%.

So what is called the transmission mechanism for monetary policy is pretty much broken if we look beneath the hype.

Another problem for Greek banks

So often and particularly in my own country I report on banks getting a back door bailout via house prices (assets against the banks loan book) rising. However in Greece things are very different. From the Bank of Greece.

According to data collected from credit institutions, nominal apartment prices are estimated to have declined on average by 6.1% year-on-year in the third quarter of 2015. According to revised data, for the first and second quarters of 2015 apartment prices fell at an annual rate of 3.9% and 5.0% respectively, whereas for 2014 as a whole the average annual decline was 7.5%.

Or as Alicia Keys would put it.

I keep on

Please do not misunderstand me I am not arguing for house prices and another bank bailout what i am saying is that under current conditions how can the Greek banking sector support the real economy?

QE for Greece

I have written before that the ECB has its finger on the trigger of approving QE for Greece, or to be more specific it is dangling it as a carrot in front of the Greek govenrment.The quid pro quo would be some economic reforms. This will be a two stage process where Greek banks return to normal liquidity operations. Yesterday it dropped another heavy hint about this.

that could even happen before the conclusion of the review, if we would be close enough to that end of the review and we would be convinced that the review would become successful.

Sadly nobody had the wit to reply with how this affects the constant proclaiming that the ECB is a “rules based organisation”. Next would come admittal to QE.

What would it be worth? Well for holders of Greek bonds quite a lot as one might expect the ten-year bond yield to halve from the current 8%. For Greece itself then issuing bonds would be cheaper than otherwise, but and here is the rub, still much more expensive than going to the ESM.


The Greek financial system remains very troubled and a lot of time has been wasted in 2015. The ECB has a very difficult job as repairing the banks will first help hedge and vulture funds more than Greek investors and taxpayers. Also in spite of the proclamations of success the deposits that left have not returned.

Meanwhile the real issue is how the banking system can support the real economy where nearly 3 years after the “Grecovery” rhetoric began we see this. From Greek Statistics.

in the 3rd quarter of 2015 the Gross Domestic Product (GDP) in volume terms decreased by 0.9% compared with the 2nd quarter of 2015


The volume of retail trade (i.e. turnover in retail trade at constant prices) in September 2015, recorded a decrease of 3.2% compared with the corresponding index of September 2014, while compared with the corresponding index of August 2015, recorded a decrease of 8.5%.

The underlying index for retail sales is stuck firmly in depression territory at 69.6 where 2010 when “shock and awe” according to Christine Lagarde began was 100. So how is the too big to fail and banking bailout strategy going?





15 thoughts on “How and when can the Greek banks support a Grecovery?

    • Hi Chris

      In theory we should know via money laundering rules as much of the money will have to be identified as coming from a Greek person. However the banking data that the other Euro central banks publish merely have a category for other Euro members cash so the waters get muddy. Then of course money may well have gone to non Euro bank deposits ( and in fact mostly be making a profit if it had).

  1. Shaun,

    Did I read that right? Greek banks are so short of cash they are issuing shares at 90% discounts to the market and begging for Government/ECB help and, at the same time, cutting the interest rate offered on deposits! Really a broken market. Still, I can’t imagine what deposit rate they would need to offer to persuade me to give them my hard earned so perhaps it is a moot point.

    • Although they should pay a dividend on the shares they don’t have to and ECB money is free. The last thing they want is nasty depositors pitching up expecting interest on their deposits.

      Gotta say I’d behave exactly the same if I was a Greek bank given the broken market created by first of all Greek Politicians and secondly by the Troika/Authorities or whatever their name is this week.

  2. And, even now, there seems not to be breath of blame attaching to those who think that the euro is a good idea. Poor old Greece.

    • The actual treaty wasn’t that bad, it had a “no cross border bailout clause”. Problem is that this clause was violated by all – the ECB, the EC the national leaders & their finance deputies. And herein lies the fundamental EU problem – there is no accountability, none of Juncker, Trichet, Strauss-Kahn, Lagarde, Merkel & Sarkozy have been convicted and hopefully jailed for breaking the treaty. Ths is also fraud, they are stealing from Euro taxpayers to subsidize French and German banks.

      The “rescue” is not helping Greeks. Greece & it’s banks were and are bankrupt. History suggests that default & devaluation would bring a painful year of re-adjustment followed by proper recovery.

      5+ years of denial have not helped, Greece just keeps slowly sinking into ever more pain.

  3. every time you look at Greece , perhaps you should compare with Iceland

    would be interesting stuff

    also Germany as it seems to be wagging the Euro dog


    • Hi Forbin

      Well for all the claims of economic policy especially monetary policy going badly for Germany and the Bundesbank I note that they have got a lower exchange rate just as world trade has dipped. So they won’t be crying into their beer.

      As to Iceland well here is an except from the latest speech by the Governor of the Central Bank.

      “According to the Bank’s forecast, published yesterday, GDP growth in
      2015 and 2016, measuring 4.6% and 3.2%, respectively, will exceed
      growth in potential output. The sizeable slack that developed during the
      economic contraction ending in 2010 was gradually absorbed between
      2011 and 2013. ……..As a result,
      unemployment has declined rapidly and demand pressures have
      developed in the labour market. According to the forecast published
      yesterday, the positive output gap is expected to peak next year at 1½%
      of GDP. Domestic demand will grow well in excess of GDP during the
      forecast horizon, which extends into 2018”

      Wouldn’t Greece just love that?

  4. I don’t remember if I commented on NBG & their Bulgarian subsidiary interlease. Interlease are known to practise sharp repossession of vehicles whereby they will sell 10,000 worth of used vehicle with 500 owing for about 500. I’d guess the staff responsible will have the opportunity for kickbacks. They should be left to sink, there is no taxpayer benefit from rescueing them.

  5. I do wonder what Tsipras’s strategy is following his sudden about face? He knows that the measures being forced on Greece will not work but is going ahead anyhow. He has no choice. Is it so that at the end of it he can say “that didn’t work – now what do you propose?” Or is it to finally convince the Greeks they would be better off outside the Euro – having taken the money first!

    • Hi Pavlaki

      Sadly we have to ask if he has any other strategy apart from remaining in power? As to hopes that his administration would be better on the corruption front well they have faded too if the story below is any guide.

      “The Parliamentary Committee for Declaration of Assets of political persons is investigating again Economy Minister Giorgos Stathakis for failing to declare income and real estate properties in addition to the 1 million euros he was investigated for in October.

      The committee, headed by SYRIZA MP Giorgos Varemenos, decided to probe further into the bank accounts and real estate deeds of Stathakis finding substantial discrepancies between his actual wealth and what he has declared.

      Also, State Minister Alekos Flambouraris is being probed further because he allegedly is shareholder of a construction company that is receiving state contracts, something that is prohibited for members of parliament.

      – See more at:

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