The pandemic in addition to the health effects with hundreds of thousands of dead, will cause strong shocks in the medium to long term in the building of organized societies and will leave deep, indelible marks on economies and societies worldwide.
Poverty and social inequality are expected to widen, while the world’s economies are already plagued by the worst recession since World War II. This, of course, was to be expected, given that, for about two months, governments imposed almost a total cessation of all economic activity through the lockdown. Now, returning to some sort of normalcy, all sectors of the economy, certainly not the banking one, are trying to record the losses and create a roadmap for recovery. The ambitious goal is at the end of 2021 to be, in terms of GDP, at the same point as in December 2019. Regardless of the economic recovery curve (V, U, W, L, etc.), the demand is for the banking sector to perform its key statutory role, that is, the strong blood donor of any kind of economic activity. The key question that arises is: can the three times recapitalized banks, which were, after all, in the process of recovering from many years of intensive care before the new crisis, take on this crucial role? The answer is “of course yes”! Of course not because they have enough funds to “burn” or because their current, otherwise sufficient, liquidity is inexhaustible. Their ability to support the recovery is mainly fueled by the much higher than expected courageous measures to support their liquidity and capital adequacy from the ECB, but also by the announced government interventions to employees and companies, already amounting to 24 billion. Can the three times recapitalized banks, which were, after all, in the process of recovering from many years of intensive care before the new crisis, take on this crucial role? The answer is “of course yes”! Of course not because they have enough funds to “burn” or because their current, otherwise sufficient, liquidity is inexhaustible. Their ability to support the recovery is mainly fueled by the much higher than expected courageous measures to support their liquidity and capital adequacy from the ECB, but also by the announced government interventions to employees and companies, already amounting to 24 billion. Can the three times recapitalized banks, which were, after all, in the process of recovering from many years of intensive care before the new crisis, take on this crucial role? The answer is “of course yes”! Of course not because they have enough funds to “burn” or because their current, otherwise sufficient, liquidity is inexhaustible. Their ability to support the recovery is mainly fueled by the much higher than expected courageous measures to support their liquidity and capital adequacy from the ECB, but also by the announced government interventions to employees and companies, already amounting to 24 billion. can they take on this crucial role? The answer is “of course yes”! Of course not because they have enough funds to “burn” or because their current, otherwise sufficient, liquidity is inexhaustible. Their ability to support the recovery is mainly fueled by the much higher than expected courageous measures to support their liquidity and capital adequacy from the ECB, but also by the announced government interventions to employees and companies, already amounting to 24 billion. can they take on this crucial role? The answer is “of course yes”! Of course not because they have enough funds to “burn” or because their current, otherwise sufficient, liquidity is inexhaustible. Their ability to support the recovery is mainly fueled by the much higher than expected courageous measures to support their liquidity and capital adequacy from the ECB, but also by the announced government interventions to employees and companies, already amounting to 24 billion.
In terms of liquidity, the amount of money offered (liquidity) to commercial banks increased significantly, its costs decreased (in some cases it is negative, in order to facilitate the low cost of providing sufficient liquidity to the real economy – TLTRO III program), but mainly there was a significant relaxation of the criteria for collateral provided to the ECB for its loans, which is extremely important for Greek banks (EUR 750 billion PEPP program). This means that the country entered the credit easing program through the side road and for the first time since its creation. Finally, the banks were also allowed, on a temporary basis, to operate under the supervisory requirement for the minimum percentage of the required liquidity ratio (LCR), ie 100%.
On the part of the government, a number of measures have already been announced to stimulate liquidity and support the sectors in order to accelerate the recovery of the economy. Most importantly, I mention the 6.8 billion euro (3.5% of GDP) budget support package, which includes measures such as liquidity from the European Investment Bank for new business loans, guarantees for new loans to small and medium-sized enterprises (SMEs). in cooperation with the European Commission, the interest rate subsidy on loans to businesses affected, etc. Also, the completion of an agreement for the creation of a system of state guarantees (within the relevant EU rules) for up to 2 billion euros guarantees is in the final stage, which with the total leverage of liquidity through the banking system will reach, according to estimate, the 7 billion.
It is useful to mention that all of the above are above and beyond the funds that will flow into the country from the planned European Recovery Fund, when and if the same, its resources and the way of their distribution are finalized. To the surprise of many, our country and Europe reacted to the deep economic and social crisis caused by the pandemic almost instantaneously and as a result judging crucially. Like any crisis, this one opens up periods of great uncertainty, but at the same time it creates opportunities. By taking advantage of these (opportunities), the financial system can greatly assist not only in the necessary support of the economy but also in the rapid reform of the productive model of the country.
* Mr. Elias E. Xirouchakis is Deputy Chief Executive Officer at the Financial Stability Fund.