Many Greeks still struggle to claw out from mountains of debt

According to many investors, Greece is in the midst of a supercharged recovery after being the euro debt crisis’s poster child and suffering under years of recession and austerity. But many Greeks are not buying the turnaround story…

By many measures Greece has turned a corner: Its stock benchmark has jumped 26% in 2019, set for its best first half in two decades, and trumping European shares’ 8.1%  gain. Last year, the country recorded the strongest economic growth since 2007. Greece’s 10-year bonds yield 3.3%, a fraction of the 37% the country had to pay at the height of the financial crisis.

For all that, many Greeks are still struggling to claw out from under mountains of debt after a decade during which the economy cratered, contracting by more than a quarter. The country’s unemployment rate of 18.5% is still among the highest in the European Union.

Since the start of the financial crisis in 2010, more than 87,500 small and medium-sized businesses have folded, while personal disposable income has shrunk by 14.5%, national statistics show. About 4 million taxpayers, or about 37% of the population, owe the state €104.4 billion in back payments—more than triple the arrears in 2010 of €32.5 billion.

Many Greeks are exhausted and are no longer putting up a fight to preserve their assets. With cases winding their way through Greek courts, which can take years, many people who were once determined to protect their properties, have seen the ceaseless pressure take its toll, said Dimitris Anastasopoulos, a lawyer who handles cases to stop banks from taking over primary residences.

Borrowers feel harassed, with the collection agencies calling them on a daily basis, Anastasopoulos said to Bloomberg.

Repossession of Greek homes, which was unheard of, is becoming more prevalent as banks themselves face pressure to slash bad loans. Bank non-performing exposures stand at €81.8 billion, or almost half of the country’s gross domestic product. They are the biggest drag on the Greek economy.

Faced with an election year, the government of Prime Minister Alexis Tsipras is seeking to help protect primary residences. At the end of March, parliament voted a primary-residence protection framework after a long-drawn dispute with the country’s creditors over the eligibility criteria.

Distressed home owners can apply for help, and if they meet the criteria, banks will restructure the loan with the state subsidizing a part of the installments and the borrower having to repay the rest without any new delays.

The new framework covers bad loans worth around €25 billion, based on data from the Hellenic Bank Association. Of that, the trade body expects about €10 billion—corresponding to around 160,000 debtors—to use the new legislation and eventually some €5 billion may be restructured and turned into performing loans.

If the estimates are right, the new plan will help both borrowers and lenders. Greece’s creditors and the European Central Bank have identified the reduction of bad debt as the country’s top priority.

Looks Ambitious

Greek banks are auctioning off repossessed residences to clean up their balance sheets but so far the main buyers of these properties have been the banks themselves—with few other bidders emerging. In 2018, some 10,000 properties, or about 85% of the ones put on the block, were bought by the banks. Lenders estimate they’ll buy back some 15,000 homes this year.

While the government is diving in to try and help, for some that aid is coming too late.

Original Story: Bloomberg | Antonis Galanopoulos and Sotiris Nikas 
Photo: Kolokotronis
Edition:Prime Yield