More Greek Woes

Athens cautions banks on transfers to Balkans
By Kerin Hope in Athens and Stefan Wagstyl in London

Published: January 27 2009 17:20 | Last updated: January 27 2009 17:20

Greece has warned its banks against transferring funds from a €28bn government support package to their Balkan subsidiaries, because of growing fears of financial turmoil in these countries.

George Provopoulos, governor of the Bank of Greece, told the Financial Times he was concerned about the impact of the global crisis in countries – including Romania, Bulgaria and Serbia – that had experienced recent foreign currency lending booms.


I have advised the banks to be more prudent and to lend on the basis of availability of local funding, taking into careful consideration local economic conditions,” he said.

The warning comes after about 10 international banks, including Greece’s EFG Eurobank, urged European Union governments not to discriminate in their anti-crisis policies against states outside the eurozone and EU.

They were supported by the European Bank for Reconstruction and Development, the multilateral lender, which on Tuesday cut its 2009 growth forecast for the region from 2.5 per cent to 0.1 per cent. Erik Berglof, EBRD chief economist, said the danger of west European countries preparing bank support packages that discriminated against foreign countries was “a very big worry”.

The European Commission has welcomed the international banks’ initiative. The European Central Bank has already given liquidity support to EU members, notably Hungary, but has responded cautiously to proposals for assisting countries outside the union.

Bankers are particularly concerned about steep local currency declines, which have squeezed borrowers with foreign currency loans. Foreign exchange lending accounts for more than 70 per cent of loans in Serbia, 60 per cent in Hungary and in excess of 50 per cent in Romania and Bulgaria.

Mr Provopoulos said: “If economic conditions in these countries were to significantly weaken, Greek banks might find themselves exposed not just to credit risk but also to exchange rate risk.”

Banks with big market shares in south-east Europe include Italy’s Unicredit, Austria’s Raiffeisen International and Erste Bank, and Greece’s EFG, Alpha Bank and National Bank of Greece.

Meanwhile, some south-east European officials are concerned about the danger of foreign banks taking funds from the region.

Radovan Jelasic, Serbia’s central bank governor, told the FT this happened in Belgrade in December when he relaxed banks’ reserve requirements to release €600m ($780m, £564m) in local foreign exchange liquidity. Officials were dismayed to see €600m transferred out of the country by international banks in the following two weeks, he said. Foreign banks contacted by the FT in Belgrade declined to comment.

Elsewhere, Romania’s central bank said inflows from foreign owners were expected to slow, but not reverse. Some 39 per cent of the financing made available to Romanian subsidiaries of international banks was due for repayment this year but there was a “high probability” that about 80 per cent of this would be renewed, the bank said.

In Hungary, foreign banks poured in funds in October when the country faced a crisis and the International Monetary Fund launched an emergency package. Banks injected €2.8bn compared with a previous monthly average of €500m-€600m. Inflows have since dropped below the monthly average but the the central bank says “not a single bank is seeing an outflow”.

Farmers tighten stranglehold on Greece
By Kerin Hope in Athens

Published: January 27 2009 14:38 | Last updated: January 27 2009 18:13

Greek farmers on Tuesday extended a blockade of the country’s main roads that is starving the capital of food and medicine, stalling exports and straining relations with neighbouring countries.

More than 9,000 tractors have blocked the main route for trucks carrying goods to and from western Europe. Farmers are demanding that the government increases a €500m ($660m, £465m) support package.

The eight-day blockade is gradually moving closer to Athens. It highlights widening social unrest in Greece as the centre-right government of Costas Karamanlis, prime minister, struggles to restore credibility following last month’s student riots in Athens.

Mr Karamanlis said the government was “open to dialogue” but only when the roads were open again.

“You cannot hold prisoner a whole society that works to provide the resources to subsidise farming, and burden the economy even further,” he said.

Wholesalers in Athens warned on Tuesday that supermarkets and pharmacies were starting to run short of supplies.

Kostas Michalos, chairman of the Athens chamber of commerce, said: “Exports and trade generally are taking a disastrous hit. Other sectors of the economy should be allowed to meet contracts in these difficult economic times.”

The Bulgarian government appealed to the European Commission to intervene to lift the blockade after tractors surrounded customs posts at all three border crossings with Greece, leaving more than 500 trucks on the Bulgarian side.

Transit traffic at crossings with Macedonia and Turkey were also affected. Customs officials at the Kipi crossing with Turkey said on Tuesday that scuffles had broken out between lorry drivers and farmers.

Bulgaria’s truckers’ association said that it would take legal action against Greek authorities if the protests continued.

The government’s offer to farmers consists of €300m in compensation for crop damage caused by fires and floods last year, and another €200m of extra subsidies for olive oil, wheat and cotton growers who are facing increased input costs.

The farmers want the package to be increased. They also want it to exclude people who cultivate small landholdings in time off from other jobs. About 12 per cent of the Greek workforce are registered as farmers but this number includes many “urban farmers” who have second jobs in the public sector or in tourism.

Greece’s system of fragmented holdings makes farming uncompetitive compared with other Mediterranean producers such as Spain and Italy.

Large tracts of land that were once used mainly for olive growing in southern Greece have been abandoned or offered for building second homes as young people have left for service sector jobs in the cities.