By mid-August the government intends to present a proposal to deal with the huge private debt in Greece that has now reached the same amount as the country’s gross domestic product, a top Development Ministry official said this week in Athens, following a meeting between the representatives of the country’s creditors and the Government Council for the Management of Private Debt.
The proposal for the extrajudicial management of debts will initially concern enterprises and then households, while its characteristics must include speed, flexibility, a zero effect on the capital adequacy of banks, and the elimination of moral hazard in the settlement of debt mays.
The aim is to deal with the entire private debt – that is, not just the money households and corporations owe the banks, but also debts to the state, social security funds, suppliers and employees. In this context, in order to facilitate extrajudicial settlements, the government is considering passing a law by which if one-third of a company’s creditors approve a debt restructuring plan and business plan, then the remaining creditors will be obliged to go along with it.
What became clear after this week’s meeting with the country’s creditors was that the mechanism will have a temporary and not permanent character.
“Obviously this will not be a permanent system. We need an extraordinary mechanism for an extraordinary problem,” said a senior Development Ministry official.
The questions of zero effect on banks and the minimising of moral hazard have been strongly cited both by Greece’s creditors and the banks.