MacroPolis

The harmonious relationship between the Greek government and bankers, which has lasted for most of New Democracy’s tenure, was disrupted this week as the Finance Ministry goes in search of solutions that will protect vulnerable households from the ECB tightening its monetary policy and increasing interest rates.

Since July, the ECB has raised rates by 200 basis points, with the latest move being 75 basis points. The policy rate currently stands at 1.5 pct, marking the fastest policy tightening the eurozone’s central bank has ever conducted.

Since the end of the summer, the impact of those rates on loans, and mortgages specifically, started appearing more frequently in the press as banks started passing on the policy decisions to their variable rates.

Variable mortgages use the 3-M Euribor as reference rate and apply a margin on top. And, as Euribor caught up with the new policy rates, monthly payments started rising and households felt the effects on their disposable income.

At the same time, it was reported that bankers were not under pressure to attract deposits and improve their liquidity and had no immediate plans to raise deposit rates, leading to the spread, and their profits widening. 

Sources in the sector were suggesting that the additional income from the higher rates could reach over 1 billion euros in 2023.

According to Bank of Greece data, by early November the whole 50-basis point rise had already been passed on to loan rates and most of the 75-basis point move.

According to the Bank of Greece, the spread on new loans in September jumped to 4.56 pct, from 3.67 pct in July.

In 2021, during the pandemic, the Finance Ministry paid a combined amount of nearly half a billion in two schemes called Gefyra (Bridge) 1 and 2 that subsidised mortgages initially and then business loans, under certain criteria of income and eligibility, for 241 and 236 million euros respectively.

Ministry officials are now faced with a new reality that some intervention is required to protect vulnerable households in a rising rates environment, only this time there is no fiscal laxity like the one afforded during the pandemic period.

As things stand, Greece is already facing a challenging fiscal turnaround of close to 5 billion euros in 2023, which requires the modest growth outlook to materialise so targets are met.

Furthermore, the government found itself on the defensive after one of its MPs, Andreas Patsis, was revealed as being involved in some distressed debt business acquired with favourable loan terms from the same bank that it bought the bad loans from.

Just as it was attempting to deflect the case by ousting the MP, the issue of auctions became prominent through the case of a retired journalist that had her front door broken down by court officials and the police. 

Since the roll out of the new insolvency regime, there is no concrete framework to protect primary residences from foreclosures until the new state body that will purchase and lease back primary homes is rolled out.

Although the ministry has started the process of inviting interest for this new body, it is not expected to be in place for another year and in the meantime, there is only a gentlemen’s agreement with banks and servicers from auctioning primary homes.

The Finance Ministry highlighted the sensitive nature of the auctions when it refused to intervene in the recent legal complications from a Supreme Court ruling that servicers cannot execute auctions for loans sales and securitisations linked to Hercules APS.

There was some belief in the media that the ministry would deploy some legislative initiative that would break the deadlock as actions are part of the collections targets for the securitisations to raise revenues, otherwise state guarantees will be activated.

Finance Minister Christos Staikouras is trying to protect the government’s image and social sensitivity credentials by appearing to take a tough stance on the matter and bankers.

After reports of tense meetings between bankers and the finance minister in recent days, the mood appears to be on the mend and in the meeting expected on Friday there seems to be some common ground regarding a solution. According to reports, it would see banks covering half the rise in the mortgage payment, without any fiscal impact for the budget.