ATHENS — Like their colleagues across Europe, bankers in Greece invested heavily in their own government’s bonds, open to what they considered low-risk investments that helped their country.
Now they are about to pay for it.
A plan being developed to help reduce Greece’s debts — and prevent it from becoming the first euro-zone country to default on its debts — will fall hardest on the country’s banks and the national pension system. They would face tens of billions of dollars in losses on investments in Greek government bonds.
According to data from the European Banking Authority, major Greek banks hold about $70 billion in Greek bonds, more than one-fourth of the total held by private investors worldwide. Greece’s national pension system has about $30 billion at risk, according to local bank and corporate officials.
Even as Greece benefits from emergency debt relief included in the new bailout plan approved by European leaders last week, the Greek government will have to borrow even more money to shore up its financial system and replenish the pension fund. Greek bankers say they doubt they could come up with the money on their own.
“Could we raise 25 billion euros? It is a small chance,” said Gikas Hardouvelis, chief economist for Eurobank EFG in Athens.
Instead, the rescue plan being developed by European officials and the International Monetary Fund sets aside cash to rebuild the financial system.
Two years into Greece’s crisis, the latest challenges facing the government and the banks show how little progress has been made by a series of international rescue efforts.
The Greek government has undertaken extensive, often painful, reforms and it has been lent tens of billions of dollars by the IMF and Greece’s euro-zone neighbors. But after all that, the country’s debt level as of 2014 is projected to be no less than what the IMF forecast in 2009.
To help bring down Greece’s debt, European leaders are negotiating with banks and other bondholders in a variety of countries to secure a 50 percent cut in the value of privately held Greek debt.
The debt reduction “gives us more than a fighting chance. It was a necessary condition, but by no means sufficient,” said former Greek finance chief George Papaconstantinou, now the country’s energy minister. “If we don’t continue reforms and growth does not come back, we have not done much.”
Despite the optimism of officials such as Papaconstantinou, the announcement last week that bondholders would be asked to take a 50 percent loss met with mixed reaction in the country. The deal would free Greece from paying about $120 billion currently owed to private investors, but it may come with strings attached.
The new rescue program being crafted for Greece by the IMF reflects more pessimistic assumptions than a program put together for the country in May 2010. They include slower projected economic growth and slower progress toward a balanced budget.
The new program implies years of dependence for Greece on financing from the IMF and the rest of Europe. Monitoring teams from other European countries will take up permanent residence in Athens to help restructure the civil service and the economy — with some Greeks worried about a loss of sovereignty.
The government of Prime Minister George Papandreou has seen its majority in the Greek parliament eroded, raising concern that he may have trouble enacting any new program. The previous rescue program is widely blamed by Greeks for pushing the economy into a deepening hole.
Papandreou announced Monday that Greece will hold a referendum on the new European debt deal reached last week, the Associated Press reported. He appeared to take many lawmakers by surprise by saying that a hard-bargained agreement that took months for Europe’s leaders to hammer out will be put to a public ballot, the first such vote in 37 years.
Social and health statistics — from rising levels of property crime to rising rates of suicide — have begun highlighting the strains of the past two years. It is unclear when economic growth will return.
The government, meanwhile, is relying on financial techniques that would shame the average homeowner, accumulating unpaid bills to avoid bouncing checks and using long-term financing to pay operating expenses — the equivalent of paying for food with a home-equity loan.
Dimitris Daskalopolous, chairman of the Hellenic Federation of Enterprises, an alliance of the country’s major private employers, said Europe was not prepared for one of its countries to face a debt crisis and that “Greece has been the guinea pig.”
The new plan for Greece “is a big step forward,” said Miranda Xafa, a former IMF board member from Greece and now an investment consultant with IJ Partners, “but we still don’t really know the endgame.”
Bankers are worried about the price they may pay for being rescued. As Papandreou left the emergency summit of European leaders in Brussels last week, he said some banks in the country may face nationalization.
Bank officials say it would be unjust to wipe out current owners and shareholders in return for infusions of public money. Unlike banking systems in Ireland, Spain and elsewhere in Europe, Greek banks weathered the 2008 financial crisis reasonably well, and had not made the same sorts of speculative real estate investments that plagued other financial firms.
What they had done was buy large amounts of risky bonds issued by their own country — and hold on to them.
The banks also have been weakened over the past two years by a steady drain of deposits and an increase in loans that are past due. A study of the Greek banking system due in December is expected to show that close to one in five loans in the country is at risk of default.