The European Commission is dismissing proposals for the establishment of a bad bank in Greece, because “its creation requires time and money that we do not have at this time,” according to a Commission source.
The rationale is that the creation of a bad bank would take at least one year, and that during that period banks would cease all action to reduce their non-performing loans.
Moreover, the Commission is not in agreement with the IMF’s projection that Greek banks will require a new recapitalisation, in the area of 10bn euros, as it believes that the ongoing stress tests will not confirm such a need.
The assessments of the Commission and the IMF are also divergent as regards the completion of Greece’s fiscal adjustment programme this summer.
“If the Commission’s projections regarding the primary surplus are on target, one will not have to expedite the lowering of the tax-free ceiling, and a package of [social welfare] counter-measures will be feasible,” the same source noted.
The Commission believes that the IMF’s proposals on Greek debt relief should be “more realistic”, and it opposes the establishment of a post-bailout precautionary credit line, as that would have to be approved by all the legislatures of eurozone countries.
The Commission is stressing the need for the Greek government to take “ownership” of the fiscal programme, implementing with conviction measure that the parliament has already legislated, so as to avoid a regression and fiscal derailment due to electoral handouts or other patronage measures.