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The Greek government and the supervisory authorities in the country have a secret plan to cut the loans given by banks to companies and households. Through a plan like this, the authorities in the country may try to prepare for the big crash, which is expected to bring a huge recession in the loans.

The plan was sent some time ago by the American company "Bain" to the Ministry of Finance and to the management of the Bank of Greece in an attempt to find ways and plans for the credit institutions to cope with the recapitalization and the bad loans which will inevitably increase.

The main parameter is the deepening of the recession also in 2012, which will be much greater than initial estimates, on which basis the scenarios of Black Rock were prepared. They predicted that the additional bad loans of banks would amount to 10 billion euro.

The scenario

Now this scenario is already outdated, because the greater the recession (4.4% of the GDP instead of 2.8% in the initial estimates), the greater the expected bad loans will also be as more and more firms and households will find themselves unable to pay instalments on their loans. As noted in the secret report of the foreign agencies offering the scenario, "the banks and the government should look at the recapitalization from a new perspective, which means a controlled reduction of the indebtedness of firms through writing off debts so that businesses, freed from the burden of their debts would be able to undertake new investment plans to increase their profitability."

It is recalled that in Iceland a "cut" of liabilities on loans of households of a record volume amounting to 16% of the GDP took place.

Such a plan was also implemented in the U.S., where a few days ago the federal government and 49 out of the total of 50 states agreed with the five largest banks to write off part of the obligations of people who had taken mortgage loans.

The key question for Greece is whether the supervisory authorities and the Greek government have such a strategic plan that will help to stabilize banks, but also to what extent businesses and households can benefit from it.

Of course, as noted by sources from the Bank of Greece, in the first place, of major importance to the development are the companies, and therefore the plan provides that they be supported in order to start the recovery of the economy. Subsequently, the plan will be applied to consumers, i.e. the mortgage and consumer loans.

This means that banks will be asked to review the loans they have granted, but they will also have to review the "serviced" ones, not just those that are "bad", precisely in order to prevent an avalanche of new bad loans. This regulation, which is expected to begin in 2012 for the businesses and later for the households, will initially include the reduction of the monthly payments by extending the time for repayment and a grace period of certain groups from the population and later it will also include "cutting" of the principal and the interest rates.

The example

If the proposed plan, based on the experience of Iceland, does pass, "cuts" will be of around 30% of the principal in the corporate, mortgage and consumer loans, which means that it is possible to cut debt to the amount of 70 billion euro.

According to the plan this will be started first by large companies in certain sectors that are facing huge problems, but which are considered as viable. In addition to "cutting" of the principal the plan will also provide for a new loan and for the appointment of an "observer" from the bank next to the Executive Director of the company. This officer will have the same duties and responsibilities as the observers, who will be sent by the European Commission to the Greek ministries. He will participate in the decisions to be taken to rescue the company as well as for new investment plans.

For the households the proposal is to start the programme with those groups of society which the bank considers able to repay the loan under the new conditions, and not with the unemployed and other vulnerable groups who will be able to settle their debts through the recently adopted law on over indebted households.

"Rehearsal" in the public sector

A first step towards cutting the debts of borrowers is the decision of the Deputy Prime Minister and Finance Minister Evangelos Venizelos for the "cutting" of the mortgage loans received by state employees.

Suspension of payments has already broken all records

"Bad" loans have already reached the size of an avalanche and the bankers are afraid of the next period of a "boom" of non-performing loans - mortgage, corporate and consumer ones.

Within three years the bad loans have tripled (from 5.8% in 2008 to 15% last year), taking into account that a deterioration of the situation has been registered also for the first months of 2012, where it has been estimated that loans amounting to nearly 40 billion euro are in the "red" zone.

In the annual report of the Bank of Greece it has been noted that now "the capacity of households and businesses to repay their loans has been affected, resulting in an increased number of loans late in repayment".

The fear now is that a "time bomb" may be set in the foundations of the banking system, as loans to households and businesses in which there is a delay are added to the reduced deposits, depriving banks of valuable liquidity.

According to the estimates of the banks, over 500,000 households are late by one to three months in payment of their instalments, and a further 50,000 households have permanently stopped servicing their loans.