Under pressure from creditors, Greek gov’t restricts borrower protection

Just two days after submitting legislation to Parliament outlining a new framework for the protection of overindebted borrowers from foreclosures, the government on Thursday submitted an amendment watering down that protection after coming under pressure from the country’s international creditors. 

The changes foresee stricter eligibility for protection in the case of corporate loans secured against the borrower’s primary residence and stricter assessment procedures for properties’ commercial value.

The ceiling for corporate loans to be eligible for protection under the new scheme has dropped to 100,000 euros from 130,000 in terms of the outstanding balance. 

The concessionary amendment was submitted to the House after a European official emphasized the reservations of Greece’s creditors about the original framework and warned that no agreement would mean no approval for some 1 billion euros for Greece at an April 5 meeting of eurozone finance ministers. 

Attempting to justify the concession, Economy Minister Yiannis Dragasakis indicated that the government did it to “get the green light, to move forward, out of need, not desire.” 

In its original draft for the framework that will replace the expired Katseli law, the leftist government had expressed its intention to protect borrowers facing real hardship while cracking down on strategic defaulters. However, the European Central Bank had deemed that the scope of protection offered still allowed the abuse of the system. 

For his part, Finance Minister Euclid Tsakalotos pointed to concerns by the ECB’s Single Supervisory Mechanism that the concessions could prove to be a burden on Greek banks. 

However, Tsakalotos described the overall protection framework as “a step back toward normality,” noting it would not affect the capital adequacy of Greek banks. As for the restrictions to eligibility for corporate loans, he played them down, remarking that they will not apply in a large number of cases. 

The amended framework is expected to be voted on in Parliament on Friday and will be among the issues discussed on Monday when representatives of Greece’s international creditors are due back in Athens.