ECONOMY

Gov’t vows to dampen effect of higher rates

The government will exercise «discreet» pressure on banks to limit the expected interest rate increases following the European Central Bank’s (ECB) 0.25 percent hike in its key rate last week, Deputy Finance Minister Petros Doukas told Parliament yesterday. Responding to a parliamentary question by Synaspismos Left Coalition Deputy Ioannis Dragasakis, Doukas conceded that, although the rise in banks’ profitability is nearly 15 percent, the state has not seen a similar increase in tax revenues, mainly due to a 2002 law which grants about 200 million euros per year to banks that absorb their subsidiaries. Doukas admitted Greek interest rates will definitely rise as a result of the ECB hike. As regards the public debt, he said an effort is being made to prolong as much as possible borrowing at fixed rather than floating rates. Banks will be asked to have clear terms in their floating-rate loan contracts, specifying the floating range, and the final amount. Deposits and loan rates will depend on competition and the individual policies of banks, said Doukas. Dragasakis referred to a report by the National Bank of Greece which suggests that if a client receives a 150,000-euro mortgage today he will be burdened with an additional 1,000 euros per year if there is a 1 percent rise in interest rates. Dragasakis also called for measures in favor of borrowers, such as the lifting of penalties and counterincentives if someone wished to repay his/her loan early, as well as easier borrowing, with an end to the right of banks to auction the borrower’s main residence. Referring to a study of his own, Dragasakis said 10-15 percent of banks’ net profits is accounted for by state tax subsidies. «The real tax rate is 10-12 points lower than the nominal one set by a law of the previous government. This bonus is estimated at 200 million euros, which could be directly allocated to the social groups most affected by the interest rate rise,» he said. Doukas admitted this loss for public coffers, indirectly describing it as excessive.