Greece approves EUR28 bln bank support plan

Greece gave final approval to a EUR28 bln bank support plan aimed at ensuring access to loans for small- and medium-sized businesses, which make up over half its slowing economy. Parliament approved the package despite the opposition of left-wing parties which said the package benefited wealthy bankers at the expense of ordinary Greeks, a fifth of whom live below the poverty line.
Greece's conservative government, which has fallen behind in polls as the economy has cooled, watered down key conditions of its initial plan in the face of reticence from banks. It lowered commissions and dropped its insistence that lenders must give the state shares to participate in any part of the deal.
"We are trying to avoid a possible credit suffocation," Finance Minister George Alogoskoufis told parliament, where the government holds a slim majority. "With the state's intervention, I believe the market will provide funds for small- and mid-sized businesses and secure jobs."
Economists have described the plan as a political bid to bolster Greece's economy rather than an effort to bail out banks which have had little exposure to toxic assets and have suffered no writedowns.
After growing by around 4 percent for almost a decade, Greece's economy will expand just over 3 percent this year and the rate could fall below 2 percent in 2009, economists say.
So far only two banks, state-controlled ATEbank and the country's third-largest lender Alpha Bank, said they will sign up for the deal, despite calls from Prime Minister Costas Karamanlis for all lenders to take part.
Under the terms of the deal, only undercapitalised banks needing to take part in a EUR5 bln capital injection will have to issue the government with preferred shares, paying a 10 percent dividend.
Banks wishing to use EUR15 bln in government debt guarantees will have to allow a state representative on their boards with a veto over dividend payments and executive pay.
The leader of the opposition PASOK party, George Papandreou, said there was no guarantee the measures would succeed.
"It does not provide the real economy with liquidity, but offers a blank cheque to bankers," he told parliament. "The banks are cashing in and citizens are called to pay for the bill."
Economists say Greece's government has scant room to offer a fiscal stimulus as it struggles to reduce a debt equivalent to 94 percent of GDP.
"Both the government and bankers made concessions," said Dimitris Haralabopoulos of HSBC Pantelakis Securities. "They finally agreed on a plan that helps Greece face the impact of the global crisis."