Greece’s Finance Ministry is deeply concerned about serious issues arising concerning the "Hercules" state guarantee plan, following Eurostat's sudden demand that the guarantees provided by the Hellenic Republic on the securitization projects be added to public debt.
Eurostat officials have been examining the first completed transaction, the Cairo project, for many months, and according to Business Daily sources, has raised serious objections in two areas: on whether the private sector was sufficiently involved in the transaction, considering that it is very small, and, secondly, the returns on securitizations, ie the loan recovery rate, which lags behind goals set in business plans. Eurostat technocrats believe that these two problems mean that the guarantees given by the Hellenic Republic should be classified as public debt.
There are total guarantees of 23 billion euros and a possible integration into the debt would lead to a large increase in it, which at the end of June amounted to 387 billion euros. If this is confirmed, this may have an impact on the forthcoming sustainability analysis, which will be carried out in the framework of the 12th enhanced supervision report, as well as on the assessment of the country by the international credit rating agencies.
The issue has caused alarm within the government, as it was considered that the Hercules plan, which had been elaborated and negotiated with partners by the former Deputy Minister of Finance, George Zavvos, would not burden public debt and there was no risk of government guarantees being triggered. Initially, government sources tried to dispel the impressions, describing it as a formality that would be resolved quickly, which does not seem to be the case.
In parliament last week, the Minister of Finance, Christos Staikouras, avoided giving any assurances to the parties that the Hercules' guarantees will not hit debt. It needs to be noted that this does not affect the securitizations that have taken place or the banks, except indirectly, as it creates a bad climate for the domestic NPLs market.
The state’s position
The government is in talks with the Hellenic Statistical Authority, the Public Debt Management agency and the Bank of Greece in a bid to change Eurostat's mind. The main argument of the Greek side is that from the moment that DG Comp gave the green light to the "Hercules" plan and that it passed the so-called market test, today Eurostat cannot dispute it.
Additionally, they note that it is not possible for Eurostat to show inconsistency on its decisions, when they made a different decision in the case of Italy. According to sources, in the past few days, the Greek side sent a note to Eurostat staff with remarks and positions on the issue and is moderately optimistic that the final solution will not lead to an immediate burdening of the debt with Hercules' guarantees.
Greece is not Italy
On the other hand, however, many sides involved in the issue point out the large distance separating the cases of Italy - Greece. The respective transactions, which have been carried out through the Italian guarantee program, had secured satisfactory credit ratings from two companies against the one provided by the Greek plan. In addition, the Italian plan provides for the regular reassessment of the securitization assessment, in order to reflect changes in market conditions, something that the Greek plan does not provide.
Also, private participation in the respective Italian transactions was much higher, not creating an issue of private participation as was the case in Greece. Finally, Italy is an investment grade country which drastically facilitates related transactions. Analysts point out that the low credit rating of Greece (it still remains two levels below the investment grade) was the one that imposed a series of discounts on the Greek plan (for ratings, private participation, etc.), and increased state guarantees, as well as otherwise it is doubtful whether transactions of this magnitude could take place.