–Clarifies That Papademos Sees Signs of Stabilization, Recovery In 2011

By Johanna Treeck

BRUSSELS (MNI) – A gradual economic pick-up and improving financial
market conditions should help Greek banks’ access liquidity from sources
other than the European Central Bank over the course of next year,
former ECB Vice President Lucas Papademos told Market News International
on Wednesday.

“Greek banks face a liquidity problem as a consequence of the
downgrading of Greek debt. They are taking measures to strengthen both
their capital base and to find ways progressively of obtaining liquidity
from other sources,” said Papademos, who now acts as economic advisor to
Greek Prime Minister George Papandreou.

“This will take some time. It will not happen in the next few
weeks,” he cautioned.

Still, “one can reasonably expect that during the course of the
next year, as macroeconomic and financial market conditions improve, the
ability of the banks to obtain funding will correspondingly also
improve,” Papademos said.

Many Greek banks remain cut off from interbank markets, relying
exclusively on the central bank for liquidity. Strains are also seen in
other peripheral countries, with Greek, Irish, Portuguese and Spanish
banks taking up more than half of the ECB’s loans, even though they
account for less than one fifth of Eurozone GDP.

The ongoing dependency of peripheral and individual banks elsewhere
have forced the ECB to postpone its exit from non-standard liquidity
measures even as overall Eurozone money market conditions have recovered
significantly.

Asked whether the ECB will have to keep non-standard liquidity
provisions in place until Greece banks regain market access, Papademos
said: “The ECB will do first of all what is appropriate for the euro
area as a whole. Then it has to be seen how the liquidity needs of the
Greek banks will be met through alternative means.”

Papademos did not offer any details on such alternatives.

Turning to the economic outlook for the debt-troubled country,
Papademos said that although output is likely to contract again this
year and in 2011 on an annual basis, “I expect that we are going to see
signs of stabilization and some gradual recovery next year.”

–Frankfurt newsroom +49 69 72 01 42; Email: jtreeck@marketnews.com

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