Greece must fulfill its agreement with its creditors “as soon as possible” to alleviate the liquidity squeeze and higher funding costs of its lenders, Bank of Greece Governor Yannis Stournaras said.
Greek lenders have sufficient capital after strengthening their positions last year, Stournaras said in a speech in Athens on Thursday. A Feb. 4 decision by the European Central Bank to remove the waiver on Greek government bonds for its funding operations left lenders dependent on Emergency Liquidity Assistance from the Bank of Greece, which carries a “substantially higher cost,” Stournaras said. The decision “will soon be re-examined and should be revoked,” he added.
“The capacity of the banking system to finance the real economy does not depend on capital adequacy alone, but also on its liquidity,” said Stournaras, 58, presenting the national central bank’s annual report on the state of the economy. “Following the recent capital increases, Greek banks have a sufficient capital base, but their liquidity has come under considerable strain, especially in the last few months.”
Euro-region finance ministers approved a package of Greek measures including improved tax collection and tackling corruption on Tuesday following a recommendation from creditors. The agreement extends the country’s bailout, which was due to expire at the end of the month, until June, and lifts the prospect of an immediate withdrawal of ECB’s emergency liquidity support to the nation’s banks.
Greek Prime Minister Alexis Tsipras was elected on Jan. 25 on a pledge to write down a large part of the country’s bailout debt and roll back austerity measures and structural economic changes tied to it, then had to retreat to reach an agreement. Stournaras, who until last year was a finance minister in the previous government, said Greece must honor its commitments to secure continued funding.
Fitch Ratings said in a note on Wednesday that the agreement, while positive, “does not fully address uncertainties around sovereign and bank financing or necessarily ensure the success of follow-up negotiations.”
The ECB on Feb. 18 turned up the pressure on Greece to reach a political accord when it raised the available ELA funds by 3.3 billion euros ($3.8 billion) to 68.3 billion euros, less than Greece requested.
Greek banks lost more than 20 billion euros of deposits since early December, according to officials who asked not to be identified because the most recent data hasn’t been made public yet. Finance Minister Yanis Varoufakis said in a Bloomberg Television interview on Wednesday that more than 700 million euros of that has returned to Greek banks since the agreement.
While Greece’s economy is forecast to grow for a second year in 2015 after exiting a six-year slump last year, “reform fatigue” and a possible deterioration in public finances could weigh against this, Stournaras said.
“The recovery is fragile and leaves no room for complacency,” he said. “The necessary conditions are now in place for a definitive exit from the crisis and for accelerated growth in the immediate future. However, this optimistic outlook has been clouded by a protracted period of uncertainty.”