WHEN the third Greek bail-out was outlined in principle on July 13th after an extraordinarily fraught summit of euro-zone leaders, between €10 billion ($11 billion) and €25 billion out of the total sum of up to €86 billion of help was set aside for bank recapitalisation. Greek banks had been undermined for over half a year as deposits drained out of them, on worries about a possible exit from the euro once Syriza, a radical left party, won the election held in January 2015, culminating in their closure for three weeks in late June and July. They had been further hurt by the harm done to the economy and thus to their loans arising from Syriza’s ill-judged attempt to outbluff its official creditors. Even so, the notion that they would need as much as €25 billion to offset the damage and put them on a sound footing appeared unduly pessimistic.

However, just how much they actually required would not be known until the European Central Bank (ECB), since late 2014 the supervisor of the four big Greek banks—Alpha, Eurobank, National Bank of Greece and Piraeus—that dominate the economy, conducted a probe into their books together with a stress test examining how they would be affected if the economy turned even sourer than expected in 2015-17. Today the ECB has published the results. They reveal that the extra capital that will be needed is considerably less than…Continue reading