The vast (perhaps overwhelming) majority of the Greek population has either never taken out a loan, or has taken out a loan and either paid it off or continues to make timely payments on it. Often, they’ve had to make significant sacrifices to stay current on their payments for many years.However, many—especially those who took out mortgages before the economic crisis but continued to make their payments, often by making drastic cutbacks—are discovering once again that they were taken for a ride.
This is because they did not rush to register their mortgage under the Katselis Law for the protection of their primary residence and stop paying their loan installments for years until the courts ruled. Instead, they continued to pay their installments consistently.
And after several years, they learned of the Supreme Court’s unprecedented ruling that interest should be calculated on the monthly installment rather than on the outstanding principal, as is the case in the rest of the world. In practice, this means the conversion of N. Katselis’s loans into virtually interest-free loans, with retroactive effect and government approval, in accordance with the Supreme Court’s ruling.
We do not believe that all of them feel comfortable. Especially when they have heard estimates suggesting that 1 to 3 out of every 10 debtors under the Katselis Law were strategic defaulters. In other words, they were not making their loan payments even though they were able to. Among them are major debtors with loans of 600,000 euros, who benefit the most because they were charged higher interest rates.
Undoubtedly, the Supreme Court’s decision to calculate interest on the monthly payment rather than on the outstanding principal is a legal innovation of the Greek Supreme Court that violates the global principles of financial science. This is because interest compensates lenders for the fact that a euro today is worth more than a future euro due to inflation and the inability to access their funds.
By effectively making the loans covered by the Katselis Law interest-free, the government’s legislative initiative benefits tens of thousands of borrowers and resolves a social issue.
On the other hand, there’s no such thing as a free lunch. Consequently, taxpayers will be called upon to pay for the forfeiture of certain state guarantees for “Hercules” in the future—some of N. Katselis’s loans have been securitized—while new borrowers will face stricter criteria, as judicial or legislative changes to the rules increase the risk.
We understand that there was a problem with N. Katselis’s loans and that something should have been done long ago for social reasons. Perhaps it would have been more transparent and fair to find another method of subsidizing the loans directly from the budget. In any case, consistent borrowers are the only ones who truly lose out.