Sentiment reversal is top priority

Reversing negative sentiment on international markets is the biggest challenge faced by Greece’s macroeconomic policymakers, the central bank said yesterday. The Bank of Greece, the country’s central bank, said the speed of implementing fiscal reforms and pace of restoring consumer and investor confidence will determine how well Greece takes advantage of the rebounding global economy. «The domestic financial system’s ability to continue showing resilience will depend on establishing a general sentiment of trust,» the bank said in an interim report on the country’s financial sector. Concerns over Greece’s fiscal woes have rattled bond and stock markets in recent weeks, with Greece earning itself the label of being the eurozone’s weak link due to market talk that it may default on its 300-billion-euro debt. Unlike other countries, the source of Greece’s economic woes is not the banking sector, which remains healthy after it boosted the quality of its capital through share capital increases during the year, said the report. At the end of September, Greek banks had a capital adequacy ratio – which measures a bank’s capital against its risks – that rose to 13.2 percent from 10.7 percent at the end of 2008, the report added. However, Greek lenders were instructed to develop alternative ways of drawing capital, as the European Central Bank (ECB) gradually ends measures to pump liquidity into the euro system during the crisis. According to press reports, Greek banks have borrowed about 47 billion euros of the 700 billion euros disbursed by the ECB to help pump liquidity in the 16-nation region, amounting to about 7 percent of funds. This comprises quite a large amount given that Greece’s economy accounts for just 2.5 percent of the euro area. [email protected]

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