Within hours of last Monday’s Eurogroup concluding and paving the way for the completion of the third review, confusion reigned regarding what had been agreed with respect to property auctions for the coming years.
Regarding the short-term, it was made clear that Greece will have to prove to the institutions that electronic auctions are taking place across the country in order to receive all of the 6.7 billion euros in fresh loans approved by eurozone finance ministers.
While 5.7 billion euros is due to be released next month, once a handful of remaining prior actions are completed, the second subtranche of 1 billion euros will be held back by the European Stability Mechanism (ESM) until Athens has proved that it is settling state arrears and that electronic auctions are progressing smoothly.
It appears that the government’s decision to include in the recent multi-bill a provision for all physical auctions to stop from next month, moving all the transactions over to the recently launched electronic scheme, was more sudden than the institutions had expected. There are concerns on the lenders’ side about whether auctions can take place in all parts of the country, especially as many notaries have not registered for the electronic scheme, and whether the online platform, which was only launched in November, can cope with the number of auctions that are expected to take place.
The volume of foreclosures that are expected to take place, not just over the coming weeks but during the next few years, was also the source of some confusion. The Compliance Report produced by the European Commission suggested that 130,000 property auctions are expected between now and the end of 2021. The Finance Ministry denied that any such target had been agreed, citing the absence of any specific number in the Eurogroup statement, and suggested that the report from Brussels was merely designed to inform other eurozone member states.
Since the auctions in question will be carried out by Greek banks, not by the government, it is technically correct to say the coalition has not been set this particular point. However, this is a moot point as the foreclosures have become entwined with Greece’s efforts to exit the program and progress in the future. Regardless of who is carrying out the auctions (it should be noted that the government is responsible for ensuring that the electronic system works properly), the Compliance Report sets out very clearly the importance that Greece’s creditors attach to the process flowing smoothly over the next few years.
European Central Bank officials have stated on a number of occasions that they see the foreclosures as an integral part of the process Greek banks have undertaken to reduce their nonperforming exposure (NPE) and banish any possibility of new injections of capital being required. It is expected that nonperforming loans (NPLs) can be reduced by 13.5 billion euros by the end of 2019 through liquidations. This represents 30 percent of the target for reducing NPLs, underlining the importance of these e-auctions to putting banks back on the path towards becoming normal financial institutions.
The European Commission’s report goes a step further and emphasizes the need for auctions to work so that the “deeply ingrained expectation in the population that assets pledged in favor of creditors will not be liquidated” is also dispelled.
The institutions have long sought ways to establish what they call a “payment culture” in Greece. Going after property owners who have not been servicing their loans is one way of doing this, the lenders believe, as it shows that there is a high risk attached to not paying up or not seeking a restructuring. Physical auctions, though, were open to all kinds of disruptions, including strikes and protests by activists. The Compliance Report goes as far as citing anecdotal evidence of some protesters being paid to prevent certain auctions from taking place.
Greece’s lenders are also keen to weed out strategic defaulters who are gaming the system. The report makes note of the fact that some early auctions were called off because debtors decided to pay up. Also, in a written response to a question from Greek MEP, ECB president Mario Draghi highlighted flaws in the protection offered to homeowners by the so-called Katseli law passed in 2010, which protects many properties from repossession. The central banker said that although it offers protection to the more vulnerable members of Greek society that are not able to pay their mortgages, it has also “led to significant shortcomings in practice.”
“This goes against the objective of swift NPE resolution, for instance by insufficiently deterring strategic defaulters from filing for protection or scheduling court hearings in the distant future owing to the large number of applications that have overwhelmed the Greek judicial system,” added Draghi.
This is why the institutions expect the Greek government to address these shortcomings as part of the fourth review. Again, the idea that the coalition can somehow disassociate itself from the whole issue of foreclosures is shown to be wishful thinking.
Using just the electronic platform for property auctions solves some of the problems described earlier. The provision in the multi-bill approved by coalition MPs this month stipulates that all auctions should be electronic from February 21. According to the Compliance Report, 1,000 auctions a month should be carried out from March, with the number rising to 2,000 a month in the final quarter of the year so that roughly 10,000 have taken place by the end of the year. The creditors expect to see 40,000 auctions per year between 2019 and 2021.
It is highly debatable whether these numbers will be achieved in the coming months and years, but one senses that they have been set as goals with the aim of ensuring that Greek banks, with the support of the authorities, take all the measures necessary to ensure that as many auctions as possible take place and that the figure rises steadily. In this sense, they do not represent a binding commitment but there should be no doubt that the onus is very much on the government to clear the way so that the electronic transactions can progress as smoothly as possible.