Greek banks have agreed to increase liquidity in the economy by issuing more loans, Finance Minister Giorgos Papaconstantinou and Regional Development and Competitiveness Minister Michalis Chrysochoidis announced yesterday. Banks will make the commitment in exchange for Greek government guarantees to the lenders which must be used to ensure loans begin flowing into the real economy again, Papaconstantinou said after meeting with the Hellenic Bank Association, which comprises 28 members. «We agreed with the HBA to set up a specific framework consisting of a seperate agreement with each bank, with commitments so that we know and follow where the resources are going,» said Papaconstantinou. Last month, the government announced it would extend its bank guarantee program by 25 billion euros. The guarantee program «is a significant tool to boost liquidity in the Greek market,» Chrysochoidis said. Vassilios Rapanos, chairman of National Bank, said the guarantees will help lenders to channel liquidity to the «real economy.» Liquidity in the Greek market has been drying up as Prime Minister George Papandreou cut wages and pensions and increased taxation in exchange for 110 billion euros in emergency loans from the European Union and International Monetary Fund to avert the threat of Greece going bankrupt. The country’s economy is forecast to shrink 4 percent in 2010 and 2.6 percent next year, before returning to growth in 2012, according to Greek government forecasts. Data showed earlier this week that growth in Greek household borrowing weakened further in August, slowing to 0.6 percent in annual terms as the economic downturn dampened demand for credit. The Bank of Greece said the pace of loan growth to households had decelerated from 1.1 percent in July and 3.1 percent in December. Banks were also advised to provide loans to those taking advantage of a government tax settlement offer. The government said last week it plans to settle tax arrears with businesses and individuals as a one-time measure to boost revenue for the budget. The draft law was submitted to Parliament yesterday. Papaconstantinou also said the ministry is in talks with banks on issuing a card that would allow taxpayers to record proof of payment for tax-deductible expenses electronically, saving them from collecting a slew of cash register receipts.