On Monday Greece provided its four largest banks with a capital boost of 18 billion euros (22.6 USD) to alleviate its banking sector which has seen rising volatility and depleted capitalization levels.
The new capital boost comes directly from bonds issued from the European Financial Stability Facility (EFSF) rescue fund and provides liquidity for cash deprived National Bank, Alpha, Eurobank and Piraeus Bank.
Greece’s struggling banks have been among those hit hardest by the recent political uncertainty surrounding Greece’s acceptance of the international bailout package and remaining in the 17 member eurozone.
On May 14th Greeks withdrew 700 million euros from Greek banks, fueled by elections uncertainties and growing fears that Greece would leave the eurozone.
Last October eurozone leaders agreed to offer a second 130 billion euro bailout loan for Greece, consisting of not only the implementation of another austerity package, but also an agreement that the majority of Greece’s private creditors agree to a restructure of the Greek debt, lowering the debt burden from a forecasted 198% of GDP in 2012 to 121% of GDP by 2020.
On March 9, 2012 the Greek government announced that 84% of Greece’s private-sector creditors finally agreed to accept new Greek bonds worth less than half the old ones.
Writedowns from the massive restructuring of Greece’s debt lowered the likelihood of Greece defaulting on debt but it drastically lowered capitalization levels in Greece’s biggest four banks which are dependent on the ECB and the Bank of Greece for their liquidity needs.
Last week the European Central Bank (ECB) began to stop providing liquidity to some Greek banks because their capital ratios were depleted and in need of support.
Georgios Tsapouris, an investment strategist from Coutts & C0, told Bloomberg’s First Look today that the 18 billion euro boost for Greece’s four banks is “very positive” and lowers the risk of a bank run.
“By stepping up now they have cheaper funding which should also make it easier for depositors to be less fearful and to keep it there” he explained.
“There’s less risk of bank runs right now” Tsapouris said.
Greek Tourism Slowdown
Tourism in Greece is an important driver of Greece’s economy. In a recent article from the Wall St. Journal, tourism in Greece accounts for about one-sixth of economic activity and nearly one in five jobs.
The Bank of Greece reported that Greek tourism revenue is 15% lower from 2011.
Bookings in May for summer vacations are down by about one-third compared with May 2011.
According to the Wall St. Journal, “If the decline in bookings continues, it would mean about 1.5 million fewer tourists coming to Greece this year compared to last, shaving more than a percentage point off gross domestic product. It would also mean less tax revenue for Greece’s cash-strapped state, further imperiling the country’s budget targets.”
Amid the civil unrest in Greece over the past several months and pockets of anti-German sentiment on the streets during Greek protests, it is not surprising to discover that German bookings for Greek vacations is down one-third compared with 2011.
Spanish Banking Uncertainty
Last Friday Spanish bank Bankia asked the Spanish government for 19 billion euros ($24 billion) as part of a new domestic bailout plan.
There are still lingering questions about how the Spanish government plans to fund the Bankia bailout plan.
Spanish PM Mariano Rajoy previously said that Spain does not want to seek an international bailout from the EU and IMF.
The interest rate on a 10 yr. Greek note rose 17 basis points in trading Monday to at 6.46 percent.
PM Rajoy said the European Central Bank (ECB) must do more to help lower high borrowing costs.
Markets are trading higher in Europe on speculation that Beijing will undertake policy stimulus in the future to boost growth.
Beijing made it clear on Tuesday that they will roll out a “cash for clunker” program to help assist the automotive industry which has been under pressure.