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Institutions deliver nasty shock for Greek government

The Greek government came in for a shock as the meeting with lenders on Monday didn't pan out as finance ministry sources expected with the main sticking point being the ability of Greek banks to deal with a huge amount of private debt in the red.

Sources with direct knowledge of the talks in Athens on the issue of auctions could not hide their surprise at the turn of events, telling the press that the Ministers in their contacts with the Institutions were assured that everything was going well. Lenders, however, turned the tables.

Beyond the delays in initiating electronic auctions, which had caused a discomfort to Europeans and especially to the technocrats of the ECB, the many violent incidents against notaries, in order to avoid auctioning for even large scale debtors - as evidenced by the figures released each week by the notaries - disturbed the ECB's highest ranks. Hence the rather sudden intervention of M. Draghi himself at the Eurogroup, who called the Greek minister in front of his astonished counterparts, to do the obvious: to apply the laws.

Euclid Tsakalotos undertook to settle the issue, not yet knowing whether the Finance Minister had taken into account that while the Eurogroup was pointing the finger at auctions, the Greek Banking Association chastised the notaries for the decision to abstain from the auctions until the end of the year as a protest against attacks they have been facing.

Leaving aside that the government will be forced to implement the provisions it has voted in for auctioning houses and other real estate used as collateral on bad loans, it should move quickly before the domestic banking system comes crashing down under the weight of about 105 billion euros of troubled loans. In fact, the concerns about whether or not banks can implement their commitments to the ECB and SSM to manage red loans act as butter on the IMF's bread.

What are the findings / IMF estimates, which have already mobilized the staff of the systemic banks? Firstly, all the assumptions about the ability of Greek banks to handle the acute problem of "red" loans are optimistic. Fundamentally, IMF technocrats believe that legislative interventions that so far - out-of-court settlements, problematic loan sales, legal protection of bank executives who "run" loan restructuring - are important, but they are not enough on their own to drastically limit the volume of loans accumulated during the crisis and threaten not only the banking sector butthe overall the prospect of the Greek economy.

On the basis of the data from the Single Supervisory Mechanism (SSM), that the IMF quotes, estimates show a very small reduction in the number of "red" loans by the end of 2018, down from 49% to 42%, keeping Greece at the top of the Eurozone. What heightens IMF concerns is the historical precedent of 26 countries that have been in crisis since the 1960s and have spent 7 years on average to reduce the volume of their "red" loans, to a much lower level.