World Economy

Eurozone Ministers Shield Greek Bank Depositors

Eurozone Ministers Shield Greek Bank DepositorsEurozone Ministers Shield Greek Bank Depositors

Eurozone finance ministers shielded Greek bank depositors from any losses resulting from the restructuring of the nation’s financial system, as part of Friday’s deal on €86 billion ($96 billion) bailout.

Senior bank bondholders will be in the crosshairs if Greek lenders tap into any of the financial stability funds set aside in the new bailout. Eurozone finance ministers agreed to a deal that would next week place €10 billion in Greece’s bank recapitalization fund, with another €15 billion available if needed, Bloomberg reported.

“Bail-in of depositors will be explicitly excluded” from European Union rules to make private investors share the cost of fixing troubled banks, Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem told reporters after the six-hour meeting in Brussels.

Shielding All Depositors

By shielding all depositors, the eurozone will protect small and medium-sized enterprises who have more than €100,000 in their accounts and aren’t covered by government deposit insurance, Dijsselbloem said. This prevents “a blow to the Greek economy” that ministers wanted to avoid, he said. Instead, the focus will turn to bond investors.

“When so much money must be invested in banks, in the first place, banks must take part of the risks,” Dijsselbloem said.

Alpha Bank AE’s €400 million of 3.37% notes due 2017 traded at 70.5 cents on the euro Friday to yield 25.4%. Those securities are up from a low this year of 27.5 cents in July.

Firewall Fund

At the start of the new aid program, the bank funds will be placed in a designated account at the European Stability Mechanism, the currency bloc’s firewall fund. Bank supervisors can tap the money as required once Greece’s banks have gone through stress tests and an asset-quality review.

After Greece’s lenders are recapitalized, the subsequent bank holdings will be transferred to the nation’s planned privatization fund, which will then be able to sell off the stakes and use the proceeds to pay back bailout funds.

By shielding deposits, account holders won’t have “anything to worry about,” Greek Finance Minister Euclid Tsakalotos told reporters. “The process of reversing the negative effects of capital controls will start very quickly and will speedily return the banks to where they were before and hopefully on a far firmer footing.”

Debt Relief

The International Monetary Fund has called on eurozone ministers to offer Greece debt relief, following the approval of a new bailout deal.

Greece will receive up to €86 billion in loans over the next three years, in return for tax rises and spending cuts.

IMF chief Christine Lagarde welcomed the agreement, but warned Greek debt had become unsustainable. She said the country needed significant relief "well beyond what has been considered so far".

"Greece cannot restore debt sustainability solely through actions on its own," she added.

Clear Message

European Commission President Jean-Claude Juncker said the deal sent a message "loud and clear" that Greece will stay in the eurozone.

It comes at a political cost for Greek Prime Minister Alexis Tsipras, who has faced a rebellion in his left-wing Syriza party.

More than 40 MPs voted against him when parliament decided on the bailout agreement on Friday, after all-night talks. He managed to push it through with the help of members of the opposition.

Dijsselbloem, who chaired the Eurogoup meeting where the deal was hammered out, said he was confident it would "address the main challenges facing the Greek economy".

He acknowledged that dealing with debt was an important issue, especially for the IMF, but Germany has so far been vehemently against any debt "haircut" that would cost creditors billions of euros.

German Finance Minister Wolfgang Schaeuble told Deutsche Welle radio: "Outright debt forgiveness doesn't work at all under European law."