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The Chronicle of the remarkable crisis - The Bank of Greece 2008-2013
The Chronicle of the wonderful crisis is the happen of the joint effort by Bank of Greece staff. First of all, I would want to thank those that contributed to the writing of the book. But far beyond the planning of the text, a joint effort par quality was needed inside purchase to effectively address the crisis itself.
The cause of the book is to record the intense plus multifaceted escapades of the Bank of Greece inside the years from 2008 to 2013. This period will mark a watershed inside the history of contemporary Greece. In times that are important plus characterised by significant dangers, including the ones inside query, choice plus plan generating are additionally important plus characterised by significant risk. The Bank of Greece was actively concerned inside these choice generating, often straight plus additional instances indirectly, playing an significant character both domestically plus internationally, because a associate of the Eurosystem.
The Chronicle refuses to purport naturally to compete with books of financial history which is created inside the future inside purchase to recount plus explain the awesome crisis of the Greek economy. Besides, the occasions discussed are too latest to let an objective historic inquiry. For this cause, the account offered here is just limited to the Bankâs decisions, actions plus different public interventions, that reflect the own, institutional, interpretation of what led to the crisis; that important decisions had to be produced to address it; plus what the Bankâs contribution was to the leave from it.
The Bankâs character has primarily 2 aspects: initially, its involvement inside the Eurosystem plus inside ECB decision-making, with a responsibility for financial plan implementation inside Greece; plus 2nd, the guidance of the banking program with a view to safeguarding financial stability. With certain respect for this 2nd aspect â about that a big piece of the book is focused â the Bank of Greece had confronted massive challenges throughout the crisis. In reaction, about various times it had to act fast plus decisively, beneath very pressing conditions.
During the crisis the Bank moreover desired to improve its character because an consultant to society, that at the time was inundated with conflicting info originating both inside Greece plus abroad, that lead to confusion plus high uncertainty. Through the reports, speeches plus interviews you tried to present the true details inside a easy, conveniently understood manner; to dispel myths, plus inform the public found on the accessible choices plus their implications.
The book presents a comprehensive conversation of the Bankâs public interventions plus positions inside the crisis period plus describes the actions it took to protect financial stability. It delivers detailed info found on the increased banking guidance carried out inside this especially challenging period; about cash administration plus liquidity provision to the banking system; found on the implementation of resolution plus liquidation measures for credit institutions; plus found on the approach for restructuring the banking program.
In these a short speech I couldnât cover the full spectrum of the actions throughout the crisis. However, I would want to discuss 3 topics: initially, the view of the Bank of Greece because to what caused the crisis; 2nd, the Bankâs key positions in regards to the plan orientations for exiting the crisis; 3rd, the methods you took for safeguarding financial stability.
1. What caused the crisis
In addressing the crisis, the Bank of Greece initially evaluated its root causes. Naturally these causes were there before the crisis, however, came to the forefront with specific strength following 2008. Back inside 2001 it was expected which Greeceâs inclusion inside the core of European economies might act because a catalyst to accelerate its real convergence with all the advanced European nations. Unfortunately, these expectations didnât materialise. In the years which followed, financial development relied mostly about usage instead of about saving plus investment, whilst any tries to change long-established structures met with sturdy responses. Public spending kept improving, when revenue couldnât perhaps keep pace, leading to big deficits plus historically excellent degrees of public debt, inspite of the unprecedented low interest rates. The political program hesitated to take decisive reform initiatives. The nation liked the pros of the single currency, nevertheless failed to show it respected the responsibilities arising from involvement inside the financial union.
The distortions inside the development model the nation was following had been repeatedly highlighted by the Bank of Greece. Its warnings yet were not heeded. The nation continued about its carefree path, borrowing plus accumulating debts inside purchase to consume increasingly more goods plus services it didnât itself make. With the onset of the international financial crisis the global environment dramatically deteriorated, plus nations with big structural imbalances were hit the many severely. As early because inside late 2008, the Bank was caution which the crisis, that was going to hit Greece also, will be deep plus of the structural nature, adding which overcoming which crisis might need the extended, methodical plus painstaking effort, because imbalances plus structural rigidities accrued over years had to be urgently addressed.
By late 2008, it had become obvious which the implementation of the multiannual programme was required inside purchase to decrease the fiscal deficit, control debt dynamics plus carry out extensive structural reforms that might boost the economyâs weak competitiveness. But, the policies adopted were shy, despite the reality markets had started moving towards an total reassessment of credit risk which didnât preclude a Greek standard, consequently imposing hot, more onerous lending conditions.
By early 2010 it was no longer potential to pay for the deficits with financing within the markets. In Greece, the global financial crisis was growing into a sovereign debt crisis. In April 2010 the Greek government submitted to the euro region nations as well as the IMF a request for financial help, plus inside May the initially Memorandum of Economic plus Financial Policies was finalized. This caused the task of sharp financial change inside purchase to avoid standard plus lay the groundwork for rebalancing the economy.
This procedure, currently at an advanced stage, has not been linear or painless. For 1, it had not been obvious within the outset which the nation can indeed achieve an orderly change. This really is why an leave within the euro region was frequently presented because looming or unavoidable. Moreover, the conduct of financial plan throughout which period was topic to important swings between your consistent implementation of the change programme plus hesitation due to political expense considerations. In such a climate, noticeable modifications had to be prepared to the authentic agreements with the couples, inside purchase to compensate for implementation delays or mistakes inside initial predictions.
Fortunately, collapse plus leave within the euro region were prevented, because of the societyâs choice inside favour of the countryâs future in the euro region, the assistance offered by the couples, as well as the efforts of successive governments. Thus, today you could look forward to the future with better self-confidence, because you could anticipate which the economy usually recover plus, below certain conditions, usually enter into a brand-new, virtuous round.
The financial plus social bills of the change have been plus stay thick. The citizensâ sacrifices have been especially painful. But, losses inside terms of output, work plus incomes have been the cost which had to be paid to avoid a collapse of the economy. Had this collapse not been averted, losses might have been much better. An leave within the euro region, because I had submit an interview, might have opened the gates of heck.
2. Policy orientations to overcome the crisis
Against todayâs more favourable background for the nation, healing appears to be ante portas. The year 2014 marks a halt to a deep plus protracted recession. Needless to say, the economyâs change has not been completed. But because the initial, difficult cycle looks to be coming to a positive end, it will be helpful to evaluate actions plus omissions plus, many importantly, draw classes for the future.
The Bankâs positions concerning the leave within the crisis have been indicated based about a amount of plan orientations, reflected inside its magazines plus described inside detail inside the Chronicle. These plan orientations is summarised because follows:
First, Greece could create each effort to stay inside the euro region plus avoid standard, that might have incalculable financial plus social consequences.
Second, the change programme as well as the agreements with the couples guarantee the financing of the Greek economy. Without them, standard might have been inevitable. This really is why they should be implemented consistently. Moreover, to a extremely big extent the programmeâs terms relate to changes which could have been implemented lengthy ago.
Third, inside purchase to return to development, securing its European attitude, the nation could eliminate its fiscal imbalances, boost its competitiveness plus enhance the export orientation of its economy, modernise the state, restore competitive conditions inside markets plus lower the load of public debt. Greece moreover requires a fresh, outward-oriented development model.
Fourth, fiscal change must depend basically about a rationalisation of expenditure. Revenue should be improved by reducing taxes evasion plus broadening the taxes base to create potential the required reducing of taxes rates as well as the taxes load inside the future.
Fifth, the historic challenge which the nation is facing necessitates the best potential alignment of political plus social forces, an learning at the nationwide level as well as the widest potential convergence of views.
Finally, the change programmes are a important however, not enough condition for exiting the crisis. A revolutionary reorientation of the economy towards a new model needs the comprehensive National Plan for Growth, that will have far-reaching objectives plus is implemented consistently.
Adhering to these plan orientations, the Bank of Greece has done its institutional functions, informed the people plus advised the government.
3. Safeguarding financial stability
Additionally, yet, to its advisory part inside financial plan creating, the Bank of Greece furthermore had decisive powers plus tasks for shaping a approach for the banking sector, continually geared to safeguarding financial stability.
Although the crisis inside Greece began inside the public sector, contagion to the banking program was inevitable. The banking program was hit by the successive downgrades of the Greek governmentâs credit rating which led to related downgrades of the banksâ credit reviews. This truth, found on the 1 hand reduced the worth of collateral accessible to banks for borrowing within the Eurosystem, plus found on the different hand produced their access to the interbank marketplace very difficult plus pricey, slowly leading to their exception. With the debt restructuring inside 2012 the worth of the bonds held by Greek credit organizations was severely impaired. Thus their capital position was eroded or turned damaging. At the same time, the recession was leading to a continuous heighten inside non-performing financing, when the surrounding uncertainty was encouraging deposit withdrawals.
To protect financial stability, the Bank of Greece intervened if you take many targeted methods. I shall just quickly refer to the most crucial amidst them.
First, the Bank of Greece guaranteed the continuous supply of liquidity to the banking program, including by emergency assistance to the extent necessary. The provision of emergency liquidity assistance was reviewed each 2 weeks as well as the ECB Governing Council may place a stop with it for a range of factors (shortage of collateral, low capital adequacy ratios of the banks, incomplete implementation of the programme, etc.). We consequently had to completely make the positions plus persistently intervene to avoid any bad developments.
Second, to avoid a further shaking of the self-confidence of depositors you regularly had to provide the banking network with banknotes, thus because to avoid cash shortages at bank divisions or ATMs. In Chapter 8 of the book you launch for the first-time information found on the improved need for cash as well as the Bankâs cash administration throughout the crisis, that I believe there are extremely interesting.
Third, you had to chart out a approach for the recapitalisation, renovation of soundness plus restructuring of the banking program. The point of departure for this approach was the initially diagnostic assessment of Greek banks performed with BlackRock inside 2011, as well as the viability research which followed inside 2012.
The Bank of Greece involved foreign agencies to support it inside these efforts, having because a main goal to consolidate global self-confidence inside the objectivity plus impartiality of the assessment of banksâ capital requires. The 4 credit organizations which were evaluated to be worthwhile were recapitalised by the mixture of private plus public funds. Non-sustainable banks which failed to raise private funds were solved without any depositor suffering the slightest reduction. Overall, there has been twelve bank resolutions, carried out based on the provisions of the modern legal framework established inside 2011, to the formulation of that the Bank of Greece had crucially added.
The restructuring of the banking program continued with all the consumption of subsidiaries and/or divisions of foreign banks by big Greek banks. This method, you have reached 2014 having 4 big banks, and a limited small ones, rather of the around 20 banks which existed at the onset of the crisis.
In 2013 you asked BlackRock to conduct a unique diagnostic assessment. Based found on the results of the modern exercise, the Bank of Greece up-to-date the banksâ capital requires.
The credibility of the exercise as well as the marketsâ self-confidence are evidenced by the effective capital increases lately carried out by the 4 core banks inside a span of just 2 months, attracting the interest of foreign investors. In truth 2 of the core banks managed not to just cover their capital demands, because evaluated by the strain test, yet to moreover raise the funds required to repurchase their choice shares.
The contribution of the Bank of Greece inside the fields of safeguarding financial stability plus restructuring the banking sector will naturally be judged by results. Thanks to the action taken by the Bank as well as the help offered by the Eurosystem by certain critically significant decisions, banks have continued to work smoothly, even inside periods of common uncertainty. This prevented an open banking crisis â that might have had a direct impact found on the countryâs future in (or outside) the euro location. At the same time, the banking program, inspite of the thick losses it has suffered, has managed to effectively deal with its issues plus has been restructured about strong foundations by the guidance offered by the Bank of Greece because supervisory authority.
To summarize, The Chronicle of the superb crisis informs the story of the countryâs efforts â sometimes effective, sometimes not â setbacks, dangers, achievements plus delays which marked these turbulent plus eventful occasions between 2008 plus 2013. It is my hope which this narrative is of utilize to the historians of the future that might focus about this period.
I would want to close by recalling which throughout these last several years the Bank of Greece had to deal with historically unprecedented conditions which needed swift decision-making plus difficult plus delicate handling. The Bank responded to these thick challenges outstretching its capacities, because of the work, ethos plus commitment of its staff. It is to we consequently â members of the family of the Bank of Greece, that have effectively shouldered a thick load â which I would want to state a big âthank youâ plus commit this book.
