IDEAS home Printed from https://ideas.repec.org/p/lev/levypn/15-6.html
   My bibliography  Save this paper

What Should Be Done with Greek Banks to Help the Country Return to a Path of Growth?

Author

Listed:
  • Emilios Avgouleas
  • Dimitri B. Papadimitriou

Abstract

The recapitalization of Greek banks is perhaps the most critical problem for the Greek state today. Despite direct cash infusions to Greek banks that have so far exceeded 45 billion euros, with corresponding guarantees of around 130 billion euros, credit expansion has failed to pick up. There are two obvious reasons for this failure: first, the massive exodus of deposits since 2010; and second, the continuous recession--mainly the product of strongly deflationary policies dictated by international lenders. Following the 2012-13 recapitalization, creditors allowed the old, now minority, shareholders and incumbent management (regardless of culpability) to retain effective control of the banks--a decision that did not conform to accepted international practices. Sitting on a ticking time bomb of nonperforming loans (NPLs), Greek banks, rather than adopting the measures necessary to restructure their portfolios, cut back sharply on lending, while the country's economy continued to shrink. The obvious way to rehabilitate Greek banking following the new round of recapitalization scheduled for later this year is the establishment of a "bad bank" that can assume responsibility for the NPL workouts, manage the loans, and in some cases hold them to maturity and turn them around. This would allow Greek banks to make new and carefully underwritten loans, resulting in a much-needed expansion of the credit supply. Sound bank recapitalization with concurrent avoidance of any creditor bail-in could help the Greek banking sector return to financial health—and would be an effective first step in returning the country to the path of growth.

Suggested Citation

  • Emilios Avgouleas & Dimitri B. Papadimitriou, 2015. "What Should Be Done with Greek Banks to Help the Country Return to a Path of Growth?," Economics Policy Note Archive 15-6, Levy Economics Institute.
  • Handle: RePEc:lev:levypn:15-6
    as

    Download full text from publisher

    File URL: http://www.levyinstitute.org/pubs/pn_15_6.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
    2. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, pages 51-72.
    3. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, pages 51-72.
    4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, pages 121-144.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:levypn:15-6. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Dunn). General contact details of provider: http://www.levyinstitute.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.