Opinion of the European Central Bank of 10 April 2015 on the prohibition of the auction of primary residences (CON/2015/14)
Date: 2015-04-10
Institutions: European Central Bank
Subjects: Greece, auction sale, banking supervision, debt, financial solvency, financial stability, national law, residence

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 10 April 2015 

on the prohibition of the auction of primary residences 

(CON/2015/14) 

Introduction and legal basis 

On  4  March  2015  the  European  Central  Bank  (ECB)  received  a  request  from  the  Greek  Ministry  of 

Economy, Infrastructure, Maritime Affairs and Tourism for an opinion on a draft law introducing provisions 

for suspending auctions of the primary residences of eligible debtors (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC1, as 

the  draft  law  relates  to  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the 

stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the 

Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose of the draft law 

The  stated  purpose  of  the  draft  law  is  to  tackle  the  current  humanitarian  crisis  in  Greece  by  protecting 

eligible  debtors  from  the  auction  of  their  primary  residences.  Guarantors  of  eligible  debtors  are  also 

granted protection from the auction of their property. Under the draft law, for a period of two months from 

the  publication  of  the  law  or  from  the  service  of  a  notification  for  execution,  debtors  may  establish  that 

they  are  eligible  for  protection.  The  ECB  understands  that  the  protection  offered  under  the  draft  law  is 

limited  to  the  prohibition  of  auctions,  without  impeding  the  foreclosure  process  for  the  protected 

properties. 

Under  the  draft  law,  the  auction  by  banks  of  primary  residences,  the  objective  value,  for  taxation 

purposes,  of  which  does  not  exceed  EUR  300  000,  is  prohibited.  This  prohibition  will  apply  until 

31 December 2015. In order to be eligible for protection, debtors must fulfil, notably, the following criteria: 

(a) their  net  annual  income  must  not  exceed  EUR  50  000;  and  (b)  the  total  value  of  their  movable  and 

immovable  assets  must  not  exceed  EUR  500  000,  of  which  the  total  amount  of  deposits  and  other 

movable assets in Greece  and abroad on 20 November 2013  must not exceed  EUR 30  000 (periodical 

benefits  from  insurance  and  pension  schemes  are  excluded).  During  the  prohibition  period  beneficiary 

debtors  with  an  annual  household  income  of  up  to  EUR  35  000  are  obliged  to  pay  to  the  creditor  a 

monthly  instalment  equal  to  10%  of  their  net  monthly  income.  If  the  annual  family  income  exceeds  the 

threshold of EUR 35 000 the debtors are obliged to pay to the creditor a monthly instalment equal to 10% 

1  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
                                                 
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up  to  the  threshold  of  EUR  35  000  and  20%  on  the  incremental  income  above  that  threshold.  More 

vulnerable categories of debtors are granted protection under more favourable conditions.  

The protection afforded by the draft law is subject to compliance by debtors with the duty to disclose their 

property and account transactions. Furthermore, if a debtor does not comply with the obligation to pay the 

envisaged instalments for six consecutive months, the protection will be suspended.  

2. 

General observations 

2.1  The  ECB  understands  that  the  draft  law  aims  at  reintroducing  the  prohibition  on  auctions  of  the 

primary  residences  of  eligible  debtors  following  the  expiration  of  the  pre-existing  framework  of 
Law 4224/20132  at  the  end  of  2014.  The  ECB  notes  that  Law  4224/2013  was  adopted  in 

December 2013 as a temporary scheme offering protection to eligible households from auctions of 

primary residences. The ECB notes that, in comparison with Law 4224/2013, the draft law sets out 

significantly  broader  eligibility  criteria  in  terms  of  the  value  of  the  protected  property,  the  annual 

household income, the value of immovable and movable assets and the amount of deposits. Under 

Law 4224/2013, which already provided broad protection clearly going beyond the most vulnerable 

households,  the  protection  from  auctions  was  granted  provided,  inter  alia,  that:  (i)  the  objective 

value, for taxation purposes, of the primary residence did not exceed  EUR 200 000, whereas the 

draft  law  sets  a  threshold  of  EUR  300  000;  (ii)  the  debtor’s  annual  household  income  did  not 

exceed EUR 35 000,  whereas the draft law sets a threshold of  EUR 50 000; (iii) the value of the 

debtors’ movable and immovable property did not exceed EUR 270 000, whereas the draft law sets 

a  threshold  of  EUR  500  000;  and  (iv)  the  total  value  of  deposits  and  other  movable  assets  in 

Greece  and  abroad  on  20  November  2013  must  not  exceed  EUR  15  000,  whereas  the  draft  law 

sets a threshold of EUR 30 000. Law 4224/2013 was adopted following the expiration of the broad-

based moratorium on auctions of primary residences that was in force from September 2010 until 

the end of December 2013 (the ‘broad-based moratorium’).  

2.2  The  ECB  notes  that  the  broad-based  moratorium  has  had  an  adverse  impact  on  the  payment 

culture  in  Greece  and  was  also  one  of  the  major  impediments  to  the  effective  working  out  and 

resolution  of  the  very  high  amount  of  non-performing  loans  (NPLs)  of  Greek  banks.  If  banks  are 

deprived of efficient tools to work out NPLs in an effective manner this could result in unnecessarily 

high  levels  of  NPLs  and  private  sector  debt,  which  in  turn  have  an  adverse  impact  on  financial 

stability. At the same time, high levels of debt also negatively affect household expenditure plans, 

contributing to dampening of demand for new credit and overall economic activity.  

2.3  Broad-based  prohibitions  on  the  auction  of  primary  residences,  which  are  not  well-targeted  at  a 

relatively  narrow  group  of  vulnerable  debtors  in  real  need  of  protection,  are  not  an  appropriate 

means  of  tackling  a  high  volume  of  distressed  debt,  as  they  create  moral  hazard  and  undermine 

future credit supply. It is likely that the prohibitions contained in the draft law will incentivize debtors 

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FEK A 228/31.12.2013. 

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that are not in real need of protection to stop meeting their obligations or reduce them significantly 

even if they have the means to meet them in full. Banks which anticipate the negative impact these 

prohibitions could have on the payment culture are likely to provide less credit and ask for higher 

interest  rates,  which  would  subsequently  undermine  growth  and  job  creation.  As  indicated, 

measures like a prohibition on auctions should be carefully targeted at vulnerable households and 

accompanied  by  further  effective  safeguards  to  prevent  strategic  defaults  and  avoid  a  negative 

impact  on  future  credit  growth.  In  the  absence  of  the  above  conditions,  the  soundness  of  credit 

institutions may be adversely affected, as impairments may remain sustained or even increase due 

to  the  lack  of  sufficient  incentives  for  repayment,  thereby  posing  risks  to  financial  stability  with 

possible adverse spill over effects on the economy.  

2.4   Moreover, this insufficiently targeted prohibition on auctions is also likely to be perceived as unfair 

from  a  social  perspective.  The  tackling  of  the  humanitarian  crisis,  the  stated  purpose  of  the  draft 

law,  is  something  for  which  the  ECB,  like  the  Institutions,  certainly  has  understanding.  The 

development of a social safety net would be a preferable solution for tackling this issue as it would 

be  more  effective  and  not  trigger  the  abovementioned  adverse  effects.  Prohibitions  on  auctions, 

well-targeted  at  vulnerable  households,  could,  under  certain  conditions  limiting  such  adverse 

effects,  be  introduced  in  order  to  accompany  the  development  of  the  social  safety  net.  Like  the 

Institutions,  the  ECB  stands  ready  to  offer  constructive  advice  with  a  view  to  achieving  these 

objectives.  Also,  as  indicated  in  Section  3,  other  reforms,  when  successfully  completed,  will 

contribute towards providing more solid ground in the relations between creditors and debtors.  

3. 

Impact of the draft law on effective debt resolution processes and financial stability 

3.1  As  indicated,  the  ECB  notes  that  the  draft  law  grants  protection  from  the  auction  of  primary 

residences  to  a  very  wide  group  of  debtors  who  have  a  net  annual  income  of  up  to  EUR  50  000 

and a total value of movable and immovable assets not exceeding EUR 500 000. Thus, in practical 

terms,  the  draft  law  materially  reinstates  the  broad-based  moratorium.  The  very  broad  scope  of 

eligible  debtors,  which  goes  beyond  the  protection  of  vulnerable  and  low-income  debtors,  may 

create moral hazard and could lead to strategic defaults, further undermining the payment culture 

and future credit growth, as explained above.  

3.2  The  repeated  extension  of  broad-based  prohibitions  on  auctions  for  primary  residences  does  not 

constitute a sustainable solution for addressing the high level of NPLs in the Greek financial sector. 

First, it minimises incentives for debtors to cooperate with creditors in restructuring NPLs through 

efficient  processes  that  take  into  account  the  debtor’s  capacity  to  repay.  Second,  the  draft  law 

could undermine the effectiveness of recent reforms that have been implemented in Greece with a 

view to enhancing corporate and personal debt resolution frameworks. Such recent reforms include 

notably  the  establishment  of  a  Government  Council  for  the  Management  of  Private  Debt,  the 

adoption of a code of conduct to regulate banks’ engagement with debtors, the establishment of an 

out-of-court debt restructuring framework to facilitate the early rehabilitation of viable firms that are 

suffering with debt, and the adoption of definitions of a cooperative borrower and reasonable living 

expenses for use in debt workouts.  

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3.3  The  effective  workout  and  resolution  of  NPLs  is  of  the  utmost  importance  for  the  economic 

recovery  and  has  to  be  addressed  by  a  comprehensive  strategy  and  implementation  plan  that 
requires  the  coordinated  efforts  of  various  stakeholders3.  Building  further  on  the  recent  reforms 

aimed at enhancing corporate and personal debt resolution frameworks, as explained above, and 

the  commitments  underpinning  the  Master  Financial  Assistance  Facility  Agreement  (MFFA) 
between  the  European  Financial  Stability  Facility  and  the  Hellenic  Republic 4,  this  strategy  should 

focus on policies that can further contribute to sustainable debt resolution. These policies include, 

inter  alia,  the  modernisation  of  the  personal  and  corporate  insolvency  framework,  the  further 

improvement of the functioning of the judicial system, the introduction of debt counselling services 

and information campaigns, and the development of a social safety net for vulnerable home owners 

as a permanent solution.  

3.4  The ECB suggests that the Greek authorities carry out a thorough impact analysis of the possible 

effects  of  the  draft  law  including  the  solvency  and  liquidity  position  of  affected  creditors,  as  the 

measures  included  in  the  draft  law  could  put  a  significant  strain  on  them  and  the  stability  of  the 
Greek financial sector as a whole5.  

3.5  The ECB notes that, in principle, the draft law does not seem consistent with the commitments of 

the Hellenic Republic underpinning the MFFA. As discussions on the path forward for the Hellenic 

Republic  are  currently  underway  between  the  Eurogroup  and  the  Greek  government  with  the 

support  of  the  Institutions,  a  final  evaluation  of  the  draft  law  is  expected  to  take  place  within  this 

process. The Institutions will contribute to this evaluation.   

Done at Frankfurt am Main, 10 April 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

3  

4   

5    

See  paragraph  2.4  of  ECB  opinion  CON/2013/33  on  mortgagor  protection.  All  ECB  opinions  are  published  on  the 
ECB’s website www.ecb.europa.eu. 

The Eurogroup agreement of 20 February 2015 includes the following commitment: ‘The Greek authorities commit to 
refrain  from  any  rollback  of  measures  and  unilateral  changes  to  the  policies  and  structural  reforms  that  would 
negatively impact fiscal targets, economic recovery or financial stability, as assessed by the institutions.’ 

See paragraphs 1.2 and 3.3 of ECB opinion CON/2014/59 on new general measures stemming from the Supreme 
Court’s decision on consumer loancontracts.  

4