Brussels, 27/10/2014 (Agence Europe) - The two countries of the eurozone which are still under an economic adjustment programme, Greece and Cyprus, both believe that the overall positive outcome of the health check carried out by the EBA and the ECB European level into their banks will allow them to reduce their public debt.
Within the envelope of the Hellenic Financial Stability Fund (HFSF), Greece held a reserve of around €11 billion borrowed from the eurozone for the banking sector. For several weeks, rumours have been circulating in Greece about the possibility of paying this money back to the European Financial Stability Fund (EFSF), the Eurozone's temporary bailout fund, in order to bring down public debt. The Commission opened the door to this option on Monday 27 October. Noting that the health check on the four systemic banks showed limited needs for additional capital (€18 million) in just one of the banks, Simon O'Connor, a European Commission spokesperson, explained that it can be expected “with confidence” that the bank will manage to address the capital shortfall identified “without the support of the Hellenic Financial Stability Fund (HFSF)”.
The Commission and its partners in the 'troika', the ECB and the IMF, will now work with the Greek authorities to assess the “appropriate level of funds that should be maintained in the HFSF in order to guarantee the stability of the banking sector”, O'Connor explained. He went on to say that “the eleven billion euros currently in the HFSF capital buffer will no longer be necessary for this purpose and can be returned to the European Financial Stability Fund”. This would reduce the debt by the same amount, O'Connor added. On the other hand, it can be expected that this option will require the unanimous approval of the members of the eurozone, as was the case for Ireland and its request to pay back its IMF loans early (EUROPE 11154).
Cyprus is hoping to go down the same road. The European Stability Mechanism, the permanent fund of the eurozone, stood ready to pay out up to €1.35 billion to the island under the programme, including up to €1 billion to cover any capital needs which may have been flagged up by the banking sector health check. Hellenic Bank showed a slight deficit, despite the fact that its 2014 capital increase was taken into account. This deficit will be more than covered by the conversion of convertible debt securities, but also by the issue of additional equity by the bank, the Cypriot Central Bank explains. “A very important outcome of this exercise”, the Central Bank further explains, is that the billion euros available in the support programme of the island's economy “will not be used and will remain available as a buffer”. The Central Bank explains that the island's debt will therefore be reduced by one billion euros compared to the forecasts in the memorandum of understanding signed with the international creditors. However, it is now the responsibility of the Eurogroup to adapt the payment plan in light of the results of the banks' tests. (EL)