Even more troubling is that the two governing parties also appear to a owe a whopping 250 million to Greek banks which, following their recapitalisation are now 90% state-controlled. As was covered by an in-depth report by Reuters in September of 2012, this fact creates a clear conflict of interest with the same political parties now responsible for reforming the financial system also owing hundreds of millions to the Greek banks.
It already appears that the issue of political party debts has affected policy. In April of 2013 the government rushed through a measure that retroactively protected the management of the banks from prosecution over the 270 million euros worth of inadequately secured loans issued to political parties and NGOs. Of those 270 million 250 million had gone to PASOK and New Democracy.
In Greece political parties receive state funding according to their share of the vote. New Democracy and PASOK, who were traditionally the two major powers in Greek politics each receiving over 30% of the votes, would pledge future state funding as collateral to receive bank loans. However the electoral share of both parties and particularly PASOK shrank dramatically in the last elections (for PASOK it plummeted from 43% to 12%) meaning that the parties will be now receiving significantly less state funding than is necessary to service their debts, leaving the banks exposed.
Party representatives and banks have previously denied there is a problem. According to the Reuters article:
“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 ‘a small proportion of the loans may have become late, non-performing.’”
“….Piraeus denies any problem. ‘Piraeus Bank's loans to political parties are a small percentage of the total. They were given against guarantees of state funding. The loans are performing,’ said a Piraeus spokesman.”
The latter assurance from Piraeus bank came even after it took over the political loans of the bankrupt ATE bank – the financial institution that had issued the bulk (198 million euros) of the loans to PASOK and New Democracy.
Now Mr Almunia appears to have confirmed that the parties have been effectively bankrupt and for over a year, unable to service their debts. In the Commissioner’s response he writes:
“Three of the four monitored banks hold loans to the political parties described in your question. The vast majority of these loans are non-performing, as they were already in January 2013.”
Needless to say the black hole in the finances of the very same political parties responsible for Greece’s current state is likely to continue to provoke outrage at a time when legitimate businesses remain frozen out by the banking system, and citizens risk fines and even jail over their inability to pay austerity mandated tax hikes.