Gov’t unveils 28-bln-euro package

The government will make available as much as 28 billion euros, or 11.4 percent of the country’s gross domestic product, to shield the banking system and the economy from the effects of international financial turmoil, Economy and Finance Minister Giorgos Alogoskoufis said yesterday. Under the plan, the government is prepared to boost the capital of Greek banks by up to 5 billion euros by buying preferred shares with voting rights. The government also vowed to guarantee up to 15 billion euros in capital market loans and stands ready to issue 8 billion euros of special bonds to be able to inject liquidity into banks. «Through a combination of guarantees, government stakes and an increase in liquidity that will reach 28 billion euros, we will help the financial system overcome asphyxiating conditions,» the minister told reporters. European leaders last weekend struck a deal to tackle the global financial crisis by guaranteeing bank debt issues and permitting governments to buy stakes and recapitalize some distressed financial companies. Governments are trying to head off a financial rout as their economies face recession. Under the Greek plan, the salaries of top executives at banks that opt to participate in the state support program may not exceed that of the central bank governor – around 25,000 euros per month – Alogoskoufis said. Legislation will be submitted to Parliament »as soon as possible,» the minister said, reiterating that the country’s banking system was safe and sound. «Greece’s banking system is not facing the problems seen in other countries… but is feeling the impact of the crisis mainly because of the large rise in interest rates and lack of liquidity in the international system,» Alogoskoufis said. The measure will add to public debt, he added. The minister has already provided a verbal pledge that all deposits are guaranteed and last week brought new legislation to Parliament to increase the guarantee for private deposits to 100,000 euros for three years. Measures include capital boost, liquidity injection Greece said yesterday it stood ready to spend up to 28 billion euros to help its banks deal with the credit crunch and limit the impact on the real economy. Here are the main points of the support measures: n Greece will guarantee up to 15 billion euros of new medium- to long-term bank loans with a duration of three to five years that will be issued until the end of 2009. The guarantee will be provided at a cost of 100-150 basis points. The state guarantee aims at more favorable lending terms, to avoid passing on high interbank interest rates to borrowers. n Greece will issue up to 8 billion euros in special bonds to boost banks’ liquidity. These two-, three-, and five-year bonds will be placed with Greek banks against a commission of 50 to 100 basis points. n Greece stands ready to spend up to 5 billion euros to boost banks’ capital through the purchase of preferred shares. These shares will have the required characteristics of Tier 1 capital, will include a buyback option no sooner than five years, and pay the state a return of up to 10 percent. In these cases, the state will be represented on banks’ boards of directors with the right to veto pay packages for top executives. Finance Minister Giorgos Alogoskoufis told reporters top executives’ pay will not exceed the central bank governor’s at banks participating in the support program. n Greece will implement new EU bank accounting rules that ease fair value accounting, blamed by the bloc’s leaders for exacerbating the credit crunch. n Greece will strengthen the role and coordination of regulatory authorities. (Reuters)