Stournaras calls for creation of bad bank, warns against fiscal derailment

Bank of Greece Governor Yannis Stournaras has called for a systemic solution to the looming problem of Greek banks' huge amount of non-performing loans (NPLs).

In an interview with the local Kriti TV station, Stournaras categorically ruled out any prospect of a bank bail-in and said that there must be a trilateral cooperation of the country's four systemic banks, the Greek government, and the bank of Greece to gradually alleviate the crushing burden of NPLs on banks.

Bad bank for NPLs, EU deposits guarantee

"There is no such possibility [of a bank bail-in]. It did not happen even at the height of the crisis, so you can understand that there is no need for it now…Action must be taken by the banks, by the Bank of Greece, and by the government to shake off the burden of NPLs," Greece's central banker said,

"We have advanced a systemic solution because banks with their ongoing efforts can reduce the burden, but if we really want to rid ourselves of them [NPLs] in the next two years we need a systemic solution, which is to say a bad bank to which one can transfer NPLs without creating moral hazards," Stournaras said.

NPL plan needed in European South

As far as the broader European framework is concerned, Stouranaras said that NPLs must be reduced in the southern EU-member states and that the northern EU member-states should consent to a broad scheme of bank deposit guarantees.

Fiscal discipline needed

Stournaras underlined that fiscal policy must be oriented toward lowering the national debt.

"In a country with a debt of 180 percent of GDP, you cannot opt for policies that will increase the debt, but rather you must move to decrease it. Beyond what member-states do,...