Greece pledges EUR 28 bln or 11.4% of GDP to shield banks

Greece pledged up to EUR28 bln or 11.4% of its gross domestic product (GDP) to help its banks deal with the credit crunch and limit the impact on the real economy, the country's finance minister said.
"With a combination of state guarantees, state participation and increased liquidity that can reach EUR28 bln we will help the banking system to overcome the credit crunch," Finance Minister George Alogoskoufis told reporters after a cabinet meeting.
The move will enable banks to turn to the state for guarantees on their loans from the capital market, to obtain extra liquidity and get a capital boost by selling preferred shares to the government, if they so wish.
Legislation will be submitted to parliament "as soon as possible", the minister said.
Under the plan, the government is prepared to boost the capital of Greek banks by up to EUR5.0 bln by buying preferred shares with voting rights.
The government vowed to guarantee up to EUR15 bln of capital market loans by banks and stands ready to issue EUR8.0 bln of special bonds to be able to inject liquidity into banks.
"With these measures we not only shield the economy but borrowers as well and help economic growth," Alogoskoufis told reporters, reiterating that the country's banking system was safe and sound.
Bank of Greece Governor George Provopoulos, also a governing council member at the European Central Bank, said the capital adequacy of Greek banks was likely to "drop somewhat" as a result of the financial crisis.
"Greek banks will be able to benefit from these measures … which tackle the problem of a frozen interbank market, a non-existant market actually. The goal is to thaw the frozen interbank market," Provopoulos said.