Stournaras: “The capital controls will soon be eased”

10 November 2016
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The Governor of the Bank of Greece Yannis Stournaras revealed that the capital controls introduced in the summer of 2015 will soon be eased, according to an interview for Reuters. This, Mr. Stournaras explained, will depend on progress in easing the country’s debt burden, which is also a precondition for entering the ECB’s asset buying scheme.

Propped up by three successive bailouts, Greece hopes to emerge from a long recession next year. But much of its outlook depends on getting a long-sought reduction of its huge debt pile, easing capital restrictions and inclusion in the ECB’s 1.74 trillion asset buying scheme. “We gradually lift capital controls and the next step will take place soon” Stournaras, a European Central Bank Governing Council member, told Reuters. “The full lifting of capital controls is the end of the road”.

“To get there we need the finishing off of the second (bailout program) evaluation, discussion on debt measures and quantitative easing inclusion. Above everything else, it depends on how quickly full confidence returns”. Stournaras expects the government to quickly conclude the second bailout review, opening the way for talks on debt possibly in December, setting the stage for the ECB to include Greece in its quantitative easing asset purchase scheme.

Debt relief has been one of the key sticking points. Germany opposes a move now, while the ECB and the IMF are both calling for an easing of the burden, possibly through longer maturities, lower rates on some bonds, and a smoother repayment schedule. Stournaras made it clear that unless a serious discussion starts on debt, Greece will not be included in the ECB’s sovereign bond-buying program. Inclusion could give the recovery a major boost.

“QE depends on debt being sustainable. The ECB needs to have something concrete on debt measures before it performs its own debt sustainability analysis” Stournaras said. Although the ECB could only buy relatively few Greek bonds, inclusion in its asset purchases would underpin confidence and help Greece eventually return to the bond market. “The secondary effects (of QE), which are confidence and symbolism, are more important than the buying itself.

It’s a passport for us to enter markets again” Stournaras said. Cut off from global debt markets since 2014, Greece is anxious to regain market access before its current 86 billion euro bailout program expires in 2018. “The government could try a test bond issue next year. All elements of improvement are conducive to testing markets at some point not so far away” Stournaras said.

“We need inclusion in QE for this as a precondition”. The International Monetary Fund has so far refused to put money into Greece’s third bailout on the grounds that financial targets are unrealistic without major debt relief. But Stournaras said it was unlikely that the Fund would part ways with Greece. “Everybody realizes the importance of the IMF staying in the program and the IMF realizes it too” he said in response to a question.

“The IMF is close to our proposal at the Bank of Greece on debt measures and relaxing fiscal targets somewhat after the expiry of the current program” Stournaras said the central bank’s ambitious target for Greek banks to reduce their huge overhang of bad loans by 40 percent by 2019 is ‘realistic’ and would be helped by the economy’s expected recovery next year.

Greek lenders are saddled with about 109 billion euros ($119.4 billion) of non-performing exposures (NPEs), which at 45 percent of their loan books is the second highest ratio in Europe after Cyprus. Reducing the load is key to the recovery of credit growth. “The (bank) CEOs must devote more time and energy to NPL reduction and they understand it. With recovery, part of the non-performing loans will be corrected but we do not believe in auto-pilots” Stournaras said.

He said the Bank of Greece has received a good number of applications from companies interested in administering or buying NPEs and which have experience tackling similar problems in Spain, Cyprus, Ireland and Italy. “We are ready to grant about six licenses and there are more in the pipeline. These funds will also bring their own liquidity in the Greek market. I am optimistic that the NPL targets will be achieved” Stournaras concluded.

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