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Greece: Slow progress as first programme review approaching by year­end - RBS

FXStreet (Delhi) – Research Team at RBS, note that the Greek banking system’s capital shortfall, published over the weekend, of €14.5bn under the adverse scenario was lower than some fears, leaving open the possibility that private investors can be found for a sufficient take¬up to avoid nationalisation of any major bank.

Key Quotes

“Moreover, the government’s proposed method of any state participation in the recapitalisation (70% through Cocos and the rest via common equity) also potentially minimises the impact on existing bank shareholders.”

“The bank recapitalisation process continues to run alongside the prior actions remaining for the release of €3bn of undisbursed from the first tranche of loans (those linked to signing the bailout deal). Negotiations are ongoing between the government and the lenders on treatment of NPLs, pension reform and some liberalisation in the pharmaceutical sector. We do not envisage this being a major hold¬up.”

“However, our broader concern is not these two small sub tranches (totalling €3bn) but rather the subsequent first full review of the programme, which is due to take place immediately thereafter. This includes a very high number of prior actions and tough reforms; more than a ‘typical’ bailout review given the heavily frontloaded nature of the third Greek programme. European Commissioner Mr Moscovici’s visit to Athens today is likely to be so as to flesh out the most urgent actions needing to be taken.”

“In our eyes, both will push more ‘hard¬line’ creditors to offer very minimal concessions in negotiations with the Greek government on this very ambitious first bailout review, given this very sizable stick they hold, as well the very notable carrot for the Greek government if the review is completed swiftly.”

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