Why has it taken our political establishment five years to understand the threat posed to the banking system and the economy by non-performing loans (NPLs)? It is not as if they had not been alerted to the problem. Officials from the European Commission, Eurogroup, ECB, IMF and rating agencies have been warning for years now about the dangers of not dealing with the problem, but our politicians ignored them.
In fact, the political parties, with the exception of Disy, went out of their way to delay the passing of bills that would create the legal framework enabling the banks to deal with debt defaulters. They dragged their feet over the foreclosures law, tried to prevent its implementation with another law and eventually passed an ineffectual law that was not much help to the banks. As if this were not bad enough, they encouraged defaulters not to repay their loans by making a big issue out of protecting the first residence and making empty promises about debt discounts, state help and other populist nonsense.
To cut a long story short, it is thanks to the political parties that the law does not provide banks with effective tools for reducing NPLs. The central bank’s senior manager of the supervision department mentioned the ineffectiveness of the law, as well as the slowness of the justice system, as the main reasons for the slow rate of reducing NPLs. That there are so many strategic defaulters could also be attributed to the politicians’ ambiguous position on foreclosures, which encouraged debtors to think that they would get out of repaying loans in full.
Politicians were suddenly spurred into action because if European directives for reducing NPLs are not implemented the EU authorities will step in and impose their own measures – which will be much tougher – for tackling the problem.
This is why on Thursday, all party leaders gathered at the presidential palace for a meeting with President Anastasiades, supposedly, to decide on a plan of action. They decided on the establishment of a technical committee, made up of technocrats from the parties, the finance ministry and other state services that will study all the proposals made at Thursday’s meeting. A framework of proposals will be set up and then agencies of society with an interest in the matter will also be consulted because the aim is to ensure consensus, said government spokesman Prodromos Prodromou.
The formula involving committees, frameworks, consultations and consensus seems designed to lead to an ineffective action plan, which is unlikely to satisfy the European authorities. For now, we should be happy that a step was taken. As Prodromou said on Thursday, ‘it is significant there is common understanding that we must and can, as a polity, act so as to assist the banking system and borrowers and tackle this important problem’. Whether the polity will succeed is another matter.