Greece is exploring two new approaches to resolving €72 billion in troubled loans, highlighting how the legacy of the country's financial crisis continues to burden households despite a dramatic cleanup of its banking system.
The proposals aim to overcome obstacles that have prevented borrowers from securing sustainable repayment agreements, particularly older homeowners struggling with limited incomes and rising living costs.
The first option would combine a predetermined debt reduction, known as a haircut, with the transfer of repayment obligations to younger heirs. Extending repayment across generations could substantially reduce monthly installments, making otherwise unaffordable loans more manageable.
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The second approach would allow borrowers to surrender ownership of their homes in exchange for complete debt forgiveness while retaining the right to occupy the properties for life.
Similar arrangements exist in various forms elsewhere in Europe, offering alternatives to foreclosure while allowing creditors to recover value from distressed assets.
The proposals underscore a persistent contradiction in Greece's economic recovery.
Greek banks have reduced their nonperforming-loan ratio to below 3%, compared with nearly 50% during the country's prolonged debt crisis. Yet much of that improvement resulted from transferring troubled loans to investment funds through securitizations and asset sales.
These loans are now largely managed by specialized debt-servicing companies, leaving substantial liabilities outside traditional bank balance sheets.
Over the past six years, the proportion of nonperforming loans across the broader financial system has declined from 48% to 28%, while their total value has fallen by €20 billion to €72 billion.
Three structural obstacles continue to complicate further progress.
First, borrowers are approximately 60 years old on average, limiting opportunities to extend repayment schedules. Second, rising property prices have increased the value of collateral backing distressed mortgages, reducing creditors' willingness to accept substantial debt write-downs.
Third, household disposable incomes remain under pressure from elevated living costs despite increases in nominal wages. Consequently, borrowers are often expected to repay larger amounts over shorter periods, even as their financial capacity remains constrained.
