New state aid marks significant change in Greece but too optimistic

Greece will launch today an electronic platform allowing those with a mortgage who have been hit hard by the pandemic to seek state assistance in meeting their monthly payments.

Borrowers with a loan in the red will be able to apply for the benefit after an income and assets assessment procedure, as will those who are up-to-date on their payments but still need help in making ends meet.

And this is where the state aid, called the Bridge program, is a change for Greece.

It helps people who are keeping up with their obligations, but only just, through Herculean efforts, if they can prove that their income plummeted in the second quarter of the year when the country went into lockdown.

Normally assistance of this type comes after someone starts drowning. It is the first time that help is offered in Greece to prevent heads from going under the water.

In fact, out of an estimated 300,000 beneficiaries to the program, two thirds will be people with up-to-date loans with the remainder being borrowers that reneged on payments.

The platform is a move by the ruling conservatives to improve the payments culture in Greece that sharply deteriorated during the country’s decade-long economic crisis.

Strategic defaulters, borrowers that have the ability to repay loans but refuse to do so, are estimated to account for three in ten of bad loans, according to some bank officials. Others put the figure much higher.

The benefits from the Bridge program will run for nine months and initially reach up to 600 euros per month.

Throughout the nine months, the benefit paid will decline based on the Greek government’s logic that economic conditions will improve by then and loan holders will be able to get on their feet again. This is an assumption that could prove to be way too optimistic.

With the number of coronavirus cases rising globally and investors and consumers becoming increasingly nervous, the sharp rebound everyone has been expecting for 2021 is growing more unlikely.

Even if cases are brought under control in the next month or so, the upturn that will immediately follow will be milder than expected, unless, of course, a cure is found.

In Greece, the tourism sector is performing well below expectations the country had in May, threatening to derail the Finance Ministry’s objectives for the year.

The state benefit is also aimed at preventing a new generation of bad loans from arising in the country’s financial system and is a gift to banks.

Greek lenders have been more aggressive in offloading bad loans through initiatives, such as securitizations, but can hardly handle a major spike in non-performing loans coming out of the pandemic.

For now, Greece’s loan moratorium (payment freeze) is keeping any increase in bad loans at bay, but when it expires at the end of the year, banks and borrowers are set to face their next major challenge.