Bank of Greece finally released both May and June balance sheet data and is no longer out of sync with the rest of the Eurosystem NCBs in its release schedule. The following table outlines the most important entries in data since April:

The most obvious fact is that during May (the month of the first Greek elections) all of central bank lending was moved to ‘Other claims’ (ELA), something which clearly made things much more difficult for Greek banks. It is clear that MFI lending is still on an increasing path, fueled by banknote demand and euro outflows to the rest of Europe (which is recorded as increased Target2 liabilities).

Total liabilities to the Eurosystem are now over €128bn, a number which will probably exceed 60% of 2012 GDP. Coupled with official lending through the EFSF and the Greek Loan Facility as well as the ECB SMP portfolio, official liabilities are more than €250bn (over 125% of GDP), effectively subordinating the English law new Greek bonds. I really don’t see how Greece will be able to maintain this kind of net negative position without defaulting, probably to the ECB, which should be considered the largest ‘creditor’ of Greece.

Although collateral for ELA also includes a few billions which were present before the summer of 2011 (when ELA was activated for the Greek banking system), still the total collateral pledged to Bank of Greece is just enormous. According to the latest Greek banks balance sheet data, the banking system includes €254.8bn in credit claims, €68.2bn in securities, €18.3bn in shares and other equity and €35.9bn in remaining assets. Coupled with the fact that interbank loans are actually negative about €27-30bn, total (pledgable) assets are less than €350bn, with almost €270bn already pledged at the Bank of Greece. Even with extremely low haircuts of 20%, Greek banks are basically out of collateral and only continue to function on the life support of ELA and government guarantees. Completion of recapitalization using EFSF notes is urgently needed. Even then, i am not sure how the banking system can withstand any more loan write-offs and capital flight. My feeling is that Greece will face another ‘moment of truth’ in September with a default or euro exit quite probable, especially if the economic situation (and outflows) does not improve quickly.

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