New Democracy, PASOK, Can't Pay Bank Loans

As Greece struggles through a crushing economic crisis with many people unable to pay debts because of big salary cuts and tax hikes,  the two parties that ruled Greece for four decades before this year’s elections produced a coalition government are having trouble meeting bank loans too.
The New Democracy Conservatives, headed by Prime Minister Antonis Samaras, and the PASOK Socialists, now under former finance minister Evangelos Venizelos, are close to being overwhelmed by nearly $300 million in loans they got from Greek banks using only the monies they are entitled to from state coffers as collateral.
Under Greek law, political parties receive taxpayer money to fund their operations based on the percentage of the vote they get, and with the once-dominant parties taking a licking in the June 17 elections – New Democracy won only 29 percent despite finishing first and PASOK dropped from 44 percent after winning the 2009 elections to only 12 percent – they will not get as much as previously, leaving it difficult for them to repay banks.
One of the major lenders, the state-run ATEBank was pushed nearly to the edge of insolvency by bad loans, and is still owed $135.2 million by Samaras’ party and $123.6 million by PASOK, according to the Reuters news agency which reported on the precarious deals. Piraeus Bank, which took over the healthy assets of ATEBank, is owed $19.32 million by New Democracy and $8.37 million by PASOK.
A previous government in which Venizelos served as finance minister imposed 74 percent losses on investors, including Greek banks, which have been pressuring beleaguered Greeks to pay their loans back in full but not chasing the political parties, which Reuters noted has created a conflict of interest and cozy relationships between politicians and bankers. The news agency reported that some of the New Democracy and PASOK loans are “non-performing,” and are more than three months overdue.
The party’s debts far exceed the $47.6 million they received in state funds this year but they were able to keep getting loans anyway while many Greek customers and businesses have been shut out of credit and as banks rely on politicians to offer recapitalization schemes: in essence, returning all the money they lent or restructuring the loans at lower interest rates, effectively giving the parties nearly free money, the news agency noted.
With New Democracy and PASOK set to receive even less funding, there is also less of a likelihood they will be able to repay the banks, even though Samaras’ government is set to give the country’s biggest banks a $64.39 billion injection of cash from a pending bailout of $172 billion from international lenders.
Leandros Rakintzis, Greece’s independent Inspector-General of Public Administration, told Reuters that he believes the financial crunch the two big parties face is proof that Greece’s political funding system is flawed. “This is all about the exchange of favors,” he said. “These parties cannot pay the debt so it’s a vicious circle in which they come to depend on the banks. It creates an interdependence of politicians and banks.”
Costas Tsimaras, the General Manager of New Democracy, the biggest party in the Greek parliament, told Reuters the bulk of its bank loans were currently being paid on time, but that, “A small proportion of the loans may have become late, non-performing.”  For the parties to keep on top of the loans, he said, they should be restructured. “It will be very difficult for the parties to pay back the debt if there is no arrangement. Down the road, a political decision needs to be made to give parties the capacity to service their liabilities, some type of settlement on these loans,” he said. PASOK did not respond to Reuters’ requests for comment.