Talks between Greece and EU budget inspectors over the country's latest review have hit a snag over bank loans offered to individuals and small businesses more than ten years ago that were backed by the state.
The loans, reaching 3.4 billion euros, were issued prior to the crisis to vulnerable social groups, such as fire and earthquake victims, residents on remote islands, Roma, farmers, and small business owners. Out of the total amount, 2.1 billion euros have gone to individuals and 1.3 billion euros went to small businesses.
Greece's creditors are placing the issue at the top of concerns, asking for specific steps to resolve the issue, while the government is eager to negotiate ways to gain more fiscal room that will allow for growth measures.
The insistence of creditors to address the issue surprised Greek bank officials that met with them on Tuesday as this is not considered to be a top priority for the country's financial system. Banks want to find a solution but believe that top priority must be first given to resolving regulatory issues concerning the securitizations of bad loans as part of the Hercules Asset Protection scheme.
According to sources, budget inspectors reject Greece's proposal that the loans be paid off by the state over seven years as the government is now examining alternatives scenarios, such as paying off the debt in three years.
The issue has been discussed repeatedly by the two sides before without a solution having been reached. Budget inspectors want to settle issues from the past so that no grey areas are affecting Greece's public debt.
Just over two billion euros issued by the Greek lenders are non-performing, while the rest is being paid back, despite some delays. Most of the credit was issued by National Bank and Piraeus Bank, which acquired the loans from Agricultural Bank.
Greece says it wants more time to digitalize the old loans and cross-check each loan holder with the financial position as a means of providing a broader solution to the problem. Meanwhile, Greek banks are taking legal action against the state in a bid to recover the money while two committees have been set up with the participation of all sides though little progress has been made.