27 September 2012

Reuters: Greece's other debt problem

The two main political parties in Greece are facing their own financial crisis. New Democracy and Pasok are close to being overwhelmed by debts of more than €200 million, as the big parties head for a slump in state funding because of falling public support.

In Greece's state-financed political system, parties that receive more votes get more funding. Relying on past good results, the big political parties have pledged future state funding as collateral for bank loans. But in the most recent poll their support collapsed, leaving them with big loans and facing much smaller incomes.

Conservative New Democracy and socialist Pasok now owe a combined €232 million to Greek banks. Some of the loans are going unpaid, those sources say. The debts far exceed the combined €37 million the parties received in state funding last year - a figure set to decline.

The parties' debts raise questions about potential conflicts of interest because the government is in hock to a financial system that it also needs to reform. Athens is already struggling to implement spending cuts and reforms demanded by the European Union, International Monetary Fund (IMF) and European Central Bank (ECB) in return for the €130 billion bailout keeping Greece afloat. On Wednesday, unions called a nationwide strike protesting against austerity.

The loan pressures will intensify early next year when state funding is recalculated to reflect declines in the parties' support. At present, funding is still based on the proportion of votes each party won in the June 2009 election. But in January funding will change to reflect votes cast in June 2012.

Costas Tsimaras, the general manager of New Democracy, the biggest party in the Greek parliament, said  the bulk of its bank loans were currently being paid on time, but "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."

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