ECONOMY

External debt soars in Q1 2010

The external debt of the entire Greek economy soared to 413.5 billion euros, or 179.1 percent of gross domestic product, in the first quarter of the year, according to data issued yesterday by the Bank of Greece. This 12 percent rise in the country’s debt year-on-year serves to illustrate how Greece found itself shut out of the markets a few months later. Compared with the last quarter of 2009, the rise came to 1.2 percent. In euro terms, Greece’s external (public and private sector) debt rose by 44.3 billion within one year and by 4.9 billion within three months. This rise is almost entirely due to the additional debt of the public sector, which grew by some 17.3 percent in the first quarter of the year compared with the January-March period of 2009, while the external debt of the private sector increased by 2.9 percent. The banking sector’s external debt in the first quarter of 2010 was virtually the same as it was a year earlier (rising 0.8 percent), while, compared to the last quarter of 2009, it actually contracted by 0.2 percent. In practical terms, this means that banks have put the brakes on loans due to the credit crisis and indicates that Greek lenders were having a hard time securing credit from abroad. In fact, long-term borrowing by banks dropped by as much as 10.5 percent in the year’s first quarter from a year earlier. Greek banks were unable to secure long-term loans due to rumors of a possible Greek bankruptcy in the first quarter of the year, which would have had a dramatic effect on the local banking system too. Hence Greek lenders’ short-term borrowing grew by 7.6 percent from January to March. In the same period, the quality of banks’ loan portfolios posted a considerable decline due to the negative environment. Bank officials estimate that the nonperforming loans index came to 8 percent at the end of March from 7.7 percent at end-December. The increase in nonperforming loans will be the biggest challenge commercial banks have to deal with over the next couple of years and their efficiency on this front will go a long way toward determining their future.