A significant sign of increased funding costs is the so-called repo market, where firms post securities as collateral in return for short-term loans. The repo market is one of the main ways banks ensure they have enough liquidity to meet their obligations.
In the past month, said a person familiar with London repo markets, Greek banks have had to pay about 0.4 percentage point more for loans than other European banks, a notable premium.
Despite such pressures, Greek banks aren’t facing a liquidity crunch. The banks, widely thought to be on solid ground before the crisis hit Greece, are fortified with deposits. They also have no immediate refinancing needs and aren’t expected to turn to the credit markets to raise substantial funds anytime soon.
Still, banking analysts are raising questions about the repercussions of Greece’s crisis on the sector.
“As a result of the market perception of risk surrounding Greece, banks are living through an emergency situation,” Morgan Stanley banking analyst Huw van Steenis wrote on Feb. 16. “The wholesale market for long-term funding is closed and short-term repo markets are open only partially and at a high costs. In this context, all the focus is on liquidity.”
A new package of austerity measures being discussed is likely to include an increase in the current value-added tax rate of 19%, more cuts in civil-service entitlements and higher duties on luxury items such as boats and expensive cars, people familiar with the matter say. Greece is also weighing a further increase in fuel taxes.
The EU in these talks has also asked Athens to cut one of two extra months of pay that public-sector workers now get over and above their normal 12-month salary—a move the government is resisting, according to these people.
Greece has already said it plans a freeze on civil-service wages, cuts in public-sector entitlements by 10% on average, a fuel-tax increase and the closure of dozens of tax loopholes for certain professions—including some civil servants—who now pay less than their fair share in taxes.
It says the spending cuts and tax increases will produce some €8 billion to €10 billion in savings and additional revenue. Such measures are likely to stoke further resistance from Greece’s unions. Two major unions announced plans for a 24-hour general strike Wednesday. The strike is seen as the first major test of the government’s commitment to push through its harsh austerity program.
Separately, Spain’s central-bank governor Tuesdayurged the government to proceed with budget-deficit cuts and labor-market reform efforts, and told ailing Spanish banks to push ahead with restructuring plans.