Opinion of the European Central Bank of 27 February 2019 on a draft law for the protection of primary residences (CON/2019/9)
Date: 2019-02-27
Institutions: European Central Bank
Subjects: Greece, banking supervision, credit institution, debt, economic and social cohesion, financial stability, natural person, real estate credit, redemption, residence

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 27 February 2019  

on a draft law for the protection of primary residences 

(CON/2019/9) 

Introduction and legal basis 

On  19  and  22  February  2019  the  European  Central  Bank  (ECB)  received  requests  from  the  Greek 

Ministry  of  Finance  for  an  opinion  on  a  draft  law  for  the  protection  of  primary  residences  of  natural 

persons in financial difficulty (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  and  the  specific  tasks  conferred  upon  the  ECB  concerning 

the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 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 

1.1  Objectives of the draft law  

The stated objectives of the draft law are fourfold: first, to protect targeted groups of society from 

the repossession of their primary residence; second, to contribute to the deleveraging of the stock 

of  non-performing  exposures  (NPEs)  in  the  banking  system  by  converting  them  into  performing 

loans,  thereby  contributing  to  more  robust  bank  balance  sheets;  third,  to  strengthen  social 

cohesion;  and  fourth,  to  encourage  a  good  repayment  culture  by  incentivising  debtors  to  make 

prompt repayments and avoid re-defaulting. 

1.2  Eligible applicants and eligible debt  

The draft law entitles all natural persons who have a right in rem over real estate property used as 

their primary residence in Greece to protect this property from compulsory sale by restructuring, in 

accordance with the draft law, debt of any kind owed to credit institutions (including those that are 

subject to a special liquidation procedure) that has been in arrears for at least 90 days as from 31 

December 2018 and is secured on the property. Applicants can be natural persons with or without 

the  capacity  to  be  declared  bankrupt,  i.e.  both  merchants  and  non-merchants.  An  applicant  can 

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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also  request  the  restructuring  of  debt  owed  to  credit  institutions  by  a  third  person  (i.e.  not  the 

applicant  him  or  herself)  if  such  debt  is  secured  on  the  applicant’s  primary  residence.  The 

applicant’s  in  rem  right  over  the  real  estate  property  may  comprise  full  or  bare  ownership,  or  the 

right to use, and may be exclusive or based on a notional share (e.g. co-ownership).  

1.3  Eligibility thresholds  

An applicant is eligible to apply for debt restructuring provided that the following conditions, set out 

in the draft law, are met: (a) the tax value of the primary residence to be protected does not exceed 
EUR 250,000 at the time of the submission of the application;2 (b) a mortgage or pre-notation of a 

mortgage is registered on the primary residence prior to the submission of the application; (c) the 

applicant’s  family  income  in  the  last  year  in  which  a  tax  return  could  be  filed  was  no  more  than 
170%  of  reasonable  living  expenses 3;  (d)  the  total  outstanding  debt  (including  principal  and 

compound interest) on the debt that is eligible to be restructured under the draft law on the date of 

submission of the application does not exceed EUR 130,000; (e) the total value of the applicant’s 

deposits  and  securities  does  not  exceed  50%  of  the  total  debt  brought  under  restructuring  at  the 

time  the  application  is  submitted;  (f)  the  total  value  of  the  real  estate  property  owned  by  the 

applicant other than his or her primary residence does not exceed 200% of the total amount of debt 

brought under restructuring at the time the application is submitted. 

1.4  Application through online platform  

As a first step, applicants will submit their application via an online platform that is to be developed 

and  operated  by  the  Special  Secretariat  for  Private  Debt  in  collaboration  with  the  General 

Secretariat for Computer Systems of the Greek Ministry of Finance. An applicant who has already 

benefitted from a restructuring procedure under the draft law the draft law cannot submit a second 

application, even if this second application seeks the restructuring of different debts than under the 

first application or if the applicant has forfeited the restructuring arrangement resulting from the first 

application. An applicant who has already benefitted from a restructuring procedure under the draft 

law may request the restructuring of debt that has fallen in arrears for at least 90 days after the final 

submission of the first application  where, following submission of the application, the  applicant or 

the applicant’s spouse or dependent becomes subject to a specified disability or is registered with 

the  Registry  for  Unemployed  Persons  of  the  Labour  Employment  Office.  However,  an  applicant 

who  has  already  submitted  an  application  may  submit  a  second  application  if  the  first  was 

withdrawn prior to completion of the restructuring through the platform procedure or if the previous 

application was not successful vis-à-vis any of the creditors (i.e. where no debt restructuring took 

place). Eligible applicants may apply within one  year of the entry into force of the draft law, while 

people who are registered with the Registry for Unemployed Persons may apply within three years 

from  the  entry  into  force  of  the  draft  law  and  people  with  a  specified  disability  may  apply  at  any 

2  

3   

The property value is determined by the tax base of the real estate tax owed or, where no such tax is owed, by the 
objective value of the property as determined under Law 1249/1982 and Ministerial Decision 1310/1998. 

“Reasonable  living  expenses”  are  defined  by  the  draft  law  as  the  household’s  most  basic  living  expenses  plus 
additional catering costs as determined by the Secretariat for Private Debt. The draft law further provides that until 
such  time  as  they  are  set,  the  reasonable  living  expenses  determined  from  the  annual  economic  budgets  survey 
conducted by the Hellenic Statistical Authority shall be taken as reasonable living expenses. 

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point in time. 

1.5  Pre-screening of eligibility  

The platform does not allow  the final submission of an application  if the  documentation uploaded 

does  not  allow  it  to  conclude  that  the  eligibility  requirements  or  the  deadlines  for  submitting  an 

application  have  been  met.  An  applicant  may  request  permission  from  the  Secretary  for  Private 

Debt  for  the  final  submission  of  his/her  application  if  he/she  can  prove  that  the  platform  wrongly 

classified him/her as ineligible or wrongly deemed that his/her application was not submitted within 

the  deadline  set.  The  Secretary  decides  on  the  matter  within  30  days  of  the  applicant’s  relevant 

request. This decision may be appealed, within two months of its issuance, to the head for the first 
instance administrative courts of the region where the primary residence is located 4.  

1.6  Restructuring proposals  

Once the application has been submitted in a final way as set out above, the platform notifies the 

creditors  whose  claims  are  covered  by  the  application.  The  creditors  are  required  to  submit 

restructuring proposals, on a stand-alone basis or jointly, within one month from such notification. A 

creditor who can establish that the applicant is ineligible or that the creditor’s claim is ineligible to 

be  restructured  may  refuse  to  submit  a  restructuring  proposal  but  must  substantiate  this  by 

uploading  the  relevant  documentation  to  the  platform.  The  applicant  must  state  which  of  the 

creditors’ restructuring proposals he or she accepts or rejects within one month of their submission.  

1.7  Restructured amount payable and mandatory debt write-off  

To  protect  his  or  her  primary  residence,  an  applicant  must  pay  in  monthly  amortising  instalments 

either  120%  of  the  commercial  value  of  the  primary  residence  at  the  time  of  the  application  plus 

interest calculated on the basis of the three-month Euribor interest rate plus 2%; or, if 120% of the 

commercial  value  of  the  primary  residence  exceeds  the  total  amount  of  debt  included  in  the 

restructuring application, then such latter amount. In each case, payments are to be made over a 
period of 25 years, which may not extend beyond the applicant’s 80th birthday. Any debt exceeding 

this amount is mandatorily written off.  

1.8  State subsidy  

Upon the application of either the applicant or any creditor participating in the restructuring process, 

the  State  subsidises  the  restructured  monthly  instalments,  provided  that  all  debt  eligible  to  be 

restructured under the draft law has been restructured through the platform or the courts, and that 

the restructuring complies  with  the relevant requirements. Subsidisation by the  State lasts for the 

duration of the restructuring. The conditions applicable to, and the amount of, the State subsidy will 

be reviewed by the State every three years. After one year from the first determination or the latest 

adjustment  of  the  amount  of  the  State  subsidy,  the  applicant  may  request  a  change  to  such 

amount,  if  changes  in  the  applicant’s  income  or  reasonable  living  expenses  or  changes  in  the 

benchmark  interest  render  compliance  with  the  terms  of  the  restructuring  impossible  for  the 

4  

The  hearing  date  for  ruling  on  the  appeal  is  set  within  two  months  of  submission  of  the  appeal.  The  ruling  is 
irrevocable,  is  published  within  two  months  from  the  hearing  date,  and  is  notified  within  two  months  from  the 
publication (i.e. within four months from the hearing date) to the Secretary for Private Debt, who has to implement it 
within one month of such notification. 

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applicant.  The  State  subsidy  will  be  discontinued  if  the  applicant  delays  payment  of  his  or  her 

portion  of  the  restructured  instalment  such  that  a  creditor  establishes  a  right  to  declare  the 

applicant  to  be  in  default,  even  if  this  right  is  not  exercised.  The  joint  ministerial  decision 

determining  the  amount  and  conditions  for  granting  the  State  subsidy  must  comply  with  Union 

legislation on State aid and ensure that the State subsidy is granted to applicants who are unable 

to pay the restructured monthly instalments and that the amount of the subsidy must be such that 

the  applicant  will  be  in  a  position  to  repay  such  instalments  from  income  alone  after  taking  into 

account reasonable living expenses. 

1.9 

Judicial restructuring  

The applicant may apply  to the courts for the protection of his or her primary residence  within 30 

days  from  the  termination  of  the  platform  restructuring  process  if  this  restructuring  process  is 

unsuccessful in respect of one or more creditors. The petition to the court must be uploaded to the 

platform, which notifies it to the creditors who participated in the restructuring. 

The court determines the monthly instalments in line with the requirements of the draft law, namely 

the  amount  to  be  mandatorily  written  off  and  the  25-year  mandatory  duration  of  the  restructuring 

scheme, deducting whatever amount the applicant has paid in the interim. 

1.10  Stay on enforcement  

All  pending  enforcement  measures  in  relation  to  the  applicant’s  primary  residence,  whether  of  a 

permanent  or  temporary,  individual  or  collective  nature,  are  automatically  suspended  as  from  the 

notification of the application to the creditors through the platform, until the expiration of the 30-day 

deadline set for the applicant to have recourse to the courts. This automatic stay of enforcement is 

binding  on  all  creditors  participating  in  the  process  and  applies  only  for  the  applicant’s  first 

application under the scheme. 

At any point in time during the hearing procedure at first or second instance the court may order, on 

its own initiative or the applicant’s request, an extension of the stay on enforcement until it issues 

its  ruling  on  the  merits  of  the  case.  Such  extension  is  granted  where  the  judge  has  reasonable 

grounds  to  believe  that  the  applicant’s  petition  has  merits  and  that  the  applicant’s  primary 

residence will have been liquidated before the issuance of the court’s ruling on the merits, and on 

condition that the applicant pays a sum amounting to 30% of the last instalment payable before the 

submission of the restructuring application to each creditor who is a party to the court proceedings. 

However, the court may reduce or even waive such interim instalment in its entirety, and in some 
cases it is required to grant an extension of the stay  on enforcement5. The court may revoke the 

extension order at any point. 

The stay on enforcement outlined above does not prevent enforcement on the applicant’s primary 

residence by an unregulated private sector creditor whose claims have not been restructured and 

who  has  registered  a  lien  (i.e.  a  mortgage  or  pre-notation  of  mortgage)  before  submission  of  the 

finalised application by the applicant. In such a case, all creditors may lodge all their claims in their 

5  

For  example,  where  a  creditor  failed  to  submit  a  restructuring  proposal  without  having  alleged  that  the  applicant’s 
debt, or the relevant claim, was ineligible for restructuring, or where the applicant requested an interim order in the 
petition to the court outlined in paragraph 1.9.   

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entirety. 

The stay on enforcement does not prevent the taking of enforcement measures over the applicant’s 

other assets, or the filing of petitions or orders of payment for claims covered by the restructuring 

application. 

1.11  Consequences of restructuring through the platform or the courts  

After a successful restructuring agreement has been reached involving at least one creditor, a stay 

of enforcement on the applicant’s primary residence applies and is binding on all creditors whose 

claims  were  restructured  through  the  platform  or  through  the  courts  and  for  all  creditors  whose 

claims  were  not  eligible  for  restructuring,  except  for  (a)  private  sector  creditors  whose  claims 

against the applicant were not eligible for restructuring under the draft law and who had registered 

a  mortgage  or  a  mortgage  pre-notation  against  the  applicant’s  primary  residence  before  the  final 

submission of the application, and (b) creditors whose claims against the applicant were eligible for 

restructuring  under  the  draft  law  but  were  ultimately  not  restructured.  These  two  categories  of 

creditors may launch their claims against the applicant in their entirety, but only after the auctioning 

of the property.  

Notwithstanding  the  above,  private  sector  creditors  whose  claims  against  the  applicant  were  not 

eligible for restructuring under the draft law may only enforce their claims if the court grants them 

permission  to  do  so.  Such  permission  is  granted  only  if  the  applicant’s  remaining  liquidable 

property  is  insufficient  to  satisfy  the  claims  of  all  creditors.  However,  even  in  this  situation  the 

applicant may still request a period of up to three years to pay the amount enforcing creditor would 

receive if the residence were auctioned; the creditor may only enforce if the applicant (re)defaults 

on these payments and by following the procedure outlined in paragraph 1.12 below. 

If the applicant consents, a creditor may register a mortgage over the primary residence for a claim 

which comes into existence during the restructuring period. No stay of enforcement applies to that 

creditor.  

After  a  successful  restructuring  and  upon  full  compliance  of  the  applicant,  the  portion  of  the 

restructured  claims  exceeding  the  restructuring  amount  payable  by  the  applicant  (see  paragraph 

1.7  above),  as  well  as  all  liens  on  the  primary  residence  that  secure  the  restructured  debt,  are 

extinguished. 

1.12  Applicant’s (re)default during the restructuring period  

If the applicant delays payment of restructured monthly instalments such that the total amount that 

is in arrears exceeds the sum of three monthly instalments, the relevant creditor whose debt is in 

arrears  must  notify  the  applicant  and  request  compliance  with  the  repayment  schedule  within  30 

days. If the applicant does not comply, the creditor may apply to the court for the applicant to be 

taken out of the scheme by submitting a statement to the platform, and thereafter enforce on the 

applicant’s  primary  residence,  in  which  case  all  creditors  may  launch  their  claims  against  the 

applicant  in  their  entirety.  The  applicant  may  still  challenge  this  by  proving  that  the  delay  in 

payment was due to force majeure events, or that the creditor abused his or her rights. 

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2. 

General observations  

2.1  Appropriate time to consult the ECB 

In  cases  of  particular  urgency  that  do  not  allow  for  a  normal  consultation  period,  the  consulting 

authority  may  indicate  urgency  in  the  consultation  request  and  ask for  a shorter  time  limit  for  the 

ECB’s  opinion  to  be  adopted.  However,  the  ECB  has  emphasised  on  several  occasions  in  its 
opinions 6  that  even  in  cases  of  particular  urgency,  or  where  the  legislation  has  reached  an 

advanced  stage,  the  national  authorities  are  not  relieved  of  their  duty  under  Articles  127(4)  and 
282(5) of the Treaty to consult the ECB at an appropriate stage in the national legislative process 7 

that  allows  sufficient  time  for:  (a)  the  ECB  to  examine  the  draft  legislative  provisions,  and  (b)  the 

relevant national authorities to take the ECB’s opinion into consideration before the provisions are 

adopted. In this respect, it  is  worth recalling that,  as noted by the European Court of Justice, the 

obligation to consult the ECB under the Treaty is intended ‘essentially to ensure that the legislature 

adopts the act only when the body has been heard which, by virtue of the specific functions that it 

exercises  in  the  Union  framework  in  the  area  concerned  and  by  virtue  of  the  high  degree  of 

expertise  that  it  enjoys,  is  particularly  well  placed  to  play  a  useful  role  in  the  legislative  process 
envisaged’ 8.  

2.2  Secondary legislation under draft law 

The ECB underlines that this opinion is based only on the latest version of the draft law that was 

provided  to  it  on  22  February  2019.  In  this  respect,  the  draft  law  delegates  the  regulation  of 

significant aspects of the new scheme to secondary legislation, most notably ministerial decisions 

to be issued jointly by four ministries. Given the critical nature of these aspects and their bearing on 

the overall scheme, and given the fact that no secondary legislation was submitted to it, it is difficult 

for the ECB to assess the scheme in a comprehensive way.    

2.3  Basic principles governing debt restructuring schemes 

Any private debt restructuring scheme should be formulated in a manner that safeguards financial 

stability,  promotes  market  efficiency  and  liquidity  and  solvency  of  banks,  and  supports  the 

adequate  flow  of  credit  to  the  economy.  While  partial  write-down  of  debt  can  sometimes  offer  a 

solution in cases where the borrower’s solvency can be restored, and where creditor losses can be 

minimised,  it  is  important  to  ensure  that  any  such  scheme  should:  (a)  not  result  in  blanket  debt 

forgiveness,  without  taking  both  the  debtors’  repayment  capacity  and  banks’  loss  absorption 

capacity into account; (b) promote a prompt payment culture and prevent moral hazard, namely the 

creation of incentives not to service debt in a timely manner; (c) be geared towards minimising the 

risk of abuse, ensuring the bona fide conduct of debtors; and (d) preserve financial stability and the 

soundness  of  credit  institutions.  Any  relevant  measures,  including  primary  and  secondary 

legislation,  and  the  supportive  administrative  and  IT  infrastructure  that  is  necessary  for  the 

6  

7  
8  

See, e.g., paragraph 2.2 of Opinion CON/2011/87, paragraph 2 of Opinion CON/2012/27, paragraph 2.1 of Opinion 
CON/2014/59,  paragraph  2  of  Opinion  CON/2014/72,  paragraph  2.1  of  Opinion  CON/2014/85  and  paragraph  2  of 
Opinion CON/2014/87. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
See second sentence of Article 4 of Council Decision 98/415/EC. 
Judgment  of  the  Court  of  Justice  of  10  July  2003,  Commission  of  the  European  Communities  v  European  Central 
Bank, C-11/00, ECLI:EU:C:2003:395, paragraphs 110 to 111. 

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implementation of such measures, should above all prove workable and efficient in the long term, 

increase the efficiency and speed of both out-of-court and court restructurings,  while at the same 
time mitigating moral hazard and maintaining credit discipline 9.  

2.4  Swift and proper implementation 

Proper  and  swift  implementation  of  the  envisaged  scheme,  both  by  all  authorities  administering 

and/or involved in the scheme and by credit institutions and other entities affected by it, is of crucial 

importance  for  ensuring  the  balance  described  in  paragraph  2.3  above  and  thereby  preventing 

serious  adverse  consequences 

for  banks’  asset  quality  and  capital  positions.  Proper 

implementation  of  the  envisaged  framework  involves,  inter  alia,  devoting  sufficient  resources  and 

ensuring the establishment of efficient procedures and infrastructures for facilitating the conclusion 

of restructurings, whether through the platform or through the courts.  

2.5  Need for impact assessment 

The  draft  law  is  being  introduced  without  the  benefit  of  any  financial  and  economic  impact 

assessment.  The  ECB  stresses  the  critical  importance  of  thoroughly  assessing  beforehand  the 

impact  of  the  draft  law  on  the  capital  adequacy  and  financial  position  of  credit  institutions  in  the 

short  and  medium  term  as  well  as  its  effects  on  the  functioning  of  the  financial  system  and  the 

economy  as  further  described  in  paragraphs  3.1  to  3.3  below,  also  taking  into  account  moral 

hazard  risks  and  the  interaction  of  the  draft  law  with  existing  legislation  as  further  described  in 

paragraphs 3.4 to 3.5 below. It is only by making such a prior assessment that it may be possible to 
mitigate  potential  negative  implications 10.  In  the  absence  of  such  impact  assessments  or  other 

background  information  explaining  the  underlying  rationale  for  the  specific  parameters  of  the 

scheme,  for  example  the  proposed  thresholds  for  eligibility  and  mandatory  restructuring 

parameters, and illuminating the comparative advantages of the proposed scheme as opposed to 

other ways of protecting primary residences, it is difficult for the ECB to be confident that the stated 
objectives of the draft law will be achieved 11. 

3. 

Specific observations  

3.1  Effects on banking sector 

3.1.1  In  the  context  of  its  direct  responsibility  for  the  supervision  of  significant  credit  institutions  in  the 

euro  area,  the  ECB  directly  supervises  four  significant  credit  institutions  in  Greece.  The  elevated 

level of nonperforming loans in Greece has been one of the key areas of focus in recent years and 

is  being  closely  monitored  from  a  supervisory  perspective.  The  four  significant  Greek  credit 

institutions  have  committed  to  achieve  certain  NPE  reduction  targets  by  2021.  The  Greek 

authorities have also committed to ‘implement reforms aimed at restoring the health of the banking 

system,  including  NPL  resolution  efforts  by  ensuring  the  continued  effectiveness  of  the  relevant 

9  

10  

11  

See  paragraph  2.4  of  Opinion  CON/2010/8,  paragraph  2.4  of  Opinion  CON/2012/40,  paragraph  2.3  of  Opinion 
CON/2012/70, paragraph 3.1 of Opinion CON/2013/34, and paragraph 2.2.2 of Opinion CON/2018/13.  

See  paragraph  3.4  of  Opinion  CON/2010/8,  paragraph  2.2  of  Opinion  CON/2010/34,  paragraph  2.1  of  Opinion 
CON/2012/40, paragraph 2.3 of Opinion CON/2012/70, and paragraph 2.2.2 of Opinion CON/2018/13.  
See  paragraph  2.2  of  Opinion  CON/2010/34,  paragraph  2.3  of  Opinion  CON/2012/40,  paragraph  2.3  of  Opinion 
CON/2012/70, and paragraph 2.2.2 of Opinion CON/2018/13. 

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legal  framework’12.  It  is  suggested  that  the  draft  law,  including  the  parameters  set  out  by  related 

secondary legislation, gives due consideration to these commitments. 

3.1.2  The  proposed  scheme  appears  to  be  a  far-reaching  initiative,  with  an  extensive  scope  of 

application  and  a  mandatory  nature.  The  draft  law  may  have  negative  implications  for  credit 

institutions, especially for their capital adequacy, provisioning needs and asset quality, as they may 

have to adjust the valuation of their loan books. This could have a potentially significant impact on 

their provisioning levels and capital given the uncertainty introduced by the draft law in terms of, for 

example, the number of debtors that will eventually apply to the scheme, the amount of debt to be 

included, the level of haircuts to be applied, and the valuation that may need to be performed for 

supervisory and accounting reasons upon the introduction of the scheme.  

3.1.3  The  draft  law  may  also  have  an  adverse  effect  on  loan  sales  and  securitisations  as  it  allows  for 

debt  securitised  under  the  Law  3156/2003  on  bond  loans,  securitisation  of  claims  and  other 
provisions13, and debt transferred under the Law on servicing of non-performing loans 14, also to be 

restructured  under  its  provisions,  and  affords  legal  protection  to  a  wide  range  of  debt,  including 
business  debt 15.  There  is  a  risk  that  these  provisions  may  disincentivise  future  NPL  sales  and 

securitisations and also impact already concluded NPL sales and securitisations. In this respect the 

draft law may encumber credit institutions’ access to securitisation markets in order to transfer non-

performing  loan  portfolios  and  obtain  liquidity  and,  consequently,  the  extension  of  credit  to  the 

economy.  

3.1.4  The ability of credit institutions to effectively manage credit risk depends on a reliable, predictable 

and  stable  legal  framework  that  adequately  balances  the  interests  of  both  creditors  and  debtors. 

However, the draft law introduces changes that may affect the ability of lenders to give effect to the 

agreed terms of secured credit in Greece, which could undermine legal certainty and the adequate 

management of credit risk in credit institutions. In this respect, it is important to carefully consider 

the impact of the draft law on credit agreements in order to ensure legal certainty and avoid undue 

interference  with  the  contractual  and  property  rights  of  credit  institutions,  and  to  prevent  moral 
hazard from arising in the relationship between creditors and debtors 16. 

3.2  Effects on financial stability 

3.2.1  Given the  wide scope of the types of debt covered by the draft law, including business debt, and 

the importance of portfolios collateralised by primary residences in total bank assets, the draft law 

may  have  a  potentially  significant  negative  impact  on  the  credit  institutions  affected  and 

implications for financial stability. Potential concerns impacting on credit institutions that need to be 

assessed  from  the  outset  stem  particularly  from  the  mandatory  haircut  imposed  on  all  debt 

exceeding  the  relevant  amounts  described,  the  mandatory  25-year  duration  of  the  restructuring 

period, the stay on enforcement for potentially long periods of time, and the interaction of the draft 

12  

13  
14  
15  
16  

See  Annex  to  the  Eurogroup  Statement  on  Greece  of  22  June  2018,  available  on  the  Council’s  website  at 
https://www.consilium.europa.eu. 

Government Gazette Issue A 157/25.6.2003. 
Government Gazette Issue A 176/16.12.2015. 
See Article 1(3), (4) and (5) and Article 17(2) and (3) of the draft law, and Opinion CON/2010/8.  

See paragraph 2.2 of Opinion CON/2015/56 and paragraph 2.2.3 of Opinion CON/2018/13.  

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law with existing legislation, most notably the household insolvency law. To resolve some of these 

concerns, it is suggested to refine the scope of the debt and debtors covered by the draft law, and 

set the relevant parameters only after a thorough assessment of their likely impact on creditors has 

been undertaken.  

3.2.2  Given the above, the ECB suggests that the consulting authority engages in meaningful and timely 

consultations  with  all  relevant  stakeholders,  including  with  the  Bank  of  Greece  as  the  national 

macroprudential authority, as such consultations might shed light on aspects of the draft law which 

are not immediately apparent.  

3.3  Effects on Greek economy 

As noted above, the scope of possible mortgage debt restructuring under the draft law is extensive. 

The draft law gives rise to risks of deterioration in the payment culture, moral hazard risks and risks 

that  the  new  scheme  will  be  abused  by  strategic  defaulters,  as  also  described  in  paragraph  3.4 

below. As a result, the draft law may adversely affect the future supply of credit and the pricing of 

mortgages. Credit institutions could respond by unduly tightening lending conditions, in particular to 

compensate for credit losses resulting from the application of the draft law, and thus increase the 

cost of financing for the economy generally, in particular for those firms and households that may 

be in financial distress but  continue to service their  debt. The implications of the draft law for the 

real economy are therefore uncertain. 

In addition, the potential for interference with the ability of lenders to give effect to the agreed terms 

of secured credit in Greece might render the secured lending market less attractive, discouraging 

new  entrants.  This  could  stifle  competition  in  financial  services  in  Greece,  due  to  a  perceived 

increase in legal uncertainty. It might also possibly hinder, rather than support, the flow of credit in 

the economy. 

3.4  Moral hazard risks and overall impact on payment culture 

The automatic stay of enforcement which starts upon notification of the application to the creditors 

through  the  platform,  and  can  be  extended  to  cover  the  procedure  at  the  court,  could  encourage 

strategic defaulters to apply, especially  where court proceedings are  not swift. Moreover, the  fact 

that  a  court  may  grant  at  first  or  second  instance  an  order  extending  the  automatic  stay  on 

enforcement granted at the platform stage of the restructuring, coupled with the option afforded to 

applicants  under  the  draft  law  to  submit  any  number  of  restructuring  applications  if  previous 

applications  were  unsuccessful  or  the  applicant  withdrew  them,  could  also  encourage  strategic 

defaulters  to  apply,  if  these  two  elements  lead  in  practice  to  a  suspension  of  all  enforcement 

measures over the primary residence for protracted periods of time. It is also understood that there 

are currently no provisions covering the interim period between the entry into force of the draft law 

and the date on which the platform becomes operational. In addition, even assuming that the stay 
on enforcement starts after the pre-screening of eligibility of the applicant by the platform 17, it is not 

clear  whether  enforcement  will  in  practice  take  place  during  the  period  between  the  filing  of  the 

application by the applicant and the notification of such filing to the relevant creditors through the 

17  

See Article 6 of the draft law. 

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platform,  as  the  final  decision  on  eligibility  lies  with  the  administrative  court  and  thus  any 

enforcement measures taken by creditors until such final decision might be overturned. Suspension 

of  enforcement  for  long  periods  of  time  is  detrimental  for  the  overall  payment  culture,  as  the 

application of the household insolvency law has shown since 2010, and endangers the path of the 

four  significant  credit  institutions  towards  their  NPE  reduction  targets,  as  it  curtails  their  ability  to 

collect  under  their  loans.  This  detrimental  effect  is  increased  by  the  fact  that  the  new  scheme  is 

intended  to  apply  in  parallel  with  the  household  insolvency  law,  which  also  provides  automatic 

stays on enforcement over all  assets of the debtor for very  long periods of time until the relevant 

court cases are ruled upon. In addition to the above, certain provisions of the draft law bear the risk 

of being open to manipulation by applicants. Considering all the above, a risk of contamination for 

currently  performing  loans  and  a  further  undermining  of  the  overall  payment  culture  cannot  be 
excluded18.  

3.5 

Interaction of draft law with existing legislation  

3.5.1  The  draft  law  is  not  being  introduced  in  a  legal  and  judicial  vacuum.  The  following  laws  are  of 

particular  relevance  to  the  draft  law:  Law  3869/2010  on  restructuring  of  debt  of  overindebted 

individuals also provides for debt write-off and restructuring through court proceedings, allows for a 

stay on enforcement over all assets of the debtor for very long periods of time, and sets out State 
subsidisation options 19; Law 4469/2017 on out of court workout mechanism allows for out-of-court 
restructuring  of  debt  for  a  different  category  of  borrowers20;  the  Code  of  Civil  Procedure  sets  out 
auctioning  and  foreclosure  procedures 21;  the  laws  regulating  bankruptcy,  special  administration 
and other collective proceedings22; the Bank of Greece’s Code of Conduct, which lays down rules 
and procedures to be followed by  banks when dealing with borrowers whose debt is in arrears 23; 
laws  that  provide  for  benefits  related  to  housing,  particularly  for  low-income  households 24;  and 

various tax and accounting rules are also relevant to the draft law.  

3.5.2  No  explanatory  memorandum  has  been  submitted  alongside  the  draft  law  explaining  why  a 

completely  new  scheme  which  will  apply  on  top  of,  and  in  parallel  with,  existing  legislation  is 

needed in order to achieve the objectives of the draft law, or what the envisaged consequences of 

the interaction of the draft law with existing legislation are expected to be. Harmonising existing and 

new  legislation  and  aligning  its  implementation  enhances  regulatory  consistency  and  limits 

opportunities to strategic defaulters to exploit potential gaps  in the regulatory framework or in the 

way it is applied. In addition, new legislation that affords protection to borrowers should not unduly 

impede the process of NPE restructuring and the ability of banks to pursue strategic defaulters, for 

18  
19  
20  
21  
22  

23  
24  

See also paragraph 3.7 below.  

Law 3869/2010, Government Gazette Issue A 130/3.8.2010. 
Law 4469/2017, Government Gazette Issue A 62/3.5.2017. 

Presidential decree 503/1985, Government Gazette Issue A 182/24.10.1985. 
Law 3588/2007, Bankruptcy Code, Government Gazette Issue A 153/10.70.2007 and Section D of Law 4307/2014 
on measures to deal with the consequences of the financial crisis and to enhance employment: incentives to settle 
debt of small businesses and professionals to credit institutions and special procedures to settle debt of corporates, 
Government Gazette Issue A 246/15.11.2014. 
Decision of the Credit and Insurance Committee of the Bank of Greece 195/29.7.2016. 
Article 3 of Law 4472/2017 on housing benefit, Government Gazette Issue A 74/19.5.2017 and Ministerial Decision 
D13/oik.33474/1934, Government Gazette issue B/2282/15.6.2018. 

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example by facilitating misuse of the framework to block the carrying out of already scheduled and 

notified auctions.  

3.5.3  It  is  understood  that  the  new  scheme  is  intended  to  apply  in  parallel  with  the  existing  household 

insolvency law, debtors will be allowed to apply under either or both frameworks, and this option is 

also open to debtors with an application that is pending under one of the two frameworks. Debtors 

who  have  already  benefited  from  debt  restructuring  and  write-off  under  the  household  insolvency 

law  may  benefit  from  a  second  restructuring  and  write-off  of  debt  under  the  draft  law.  Payments 

made by a debtor under one framework will be deducted from those payable by the debtor under 

the other framework. The stay of enforcement over all assets of the borrower applicable under the 

household insolvency law will remain in place for all other assets except for the primary residence 

until the court issues a ruling on a case under the draft law. Even debtors who have been deemed 

by  the  courts  to  be  ineligible  under  the  Law  on  household  insolvency  because  of  fraudulent 

behaviour  will  be  eligible  to  apply  under  the  draft  law  if  they  meet  the  relevant  thresholds.  An 

eligibility  criterion  under  the  household  insolvency  law  is  that  the  debtor  must be  ‘cooperative’  as 

such term is defined in the Code of Conduct adopted by the Bank of Greece. It is not clear why this 

criterion  has  not  been  included  in  the  draft  law  as  well.  Lastly,  it  is  understood  that  the  courts 

designated by the draft law as competent to deal with the restructuring and write-off process under 

the draft law are the same as those currently competent for household insolvency petitions.  

3.5.4  Allowing the two frameworks to interact in such a way gives rise to a number of risks. First, there is 

a  risk  of  further  delaying  household  insolvency  proceedings  currently  pending  and  creating 

additional  backlogs  in  the  courts.  Court  backlogs  coupled  with  stays  on  enforcement  affect  the 

ability  of  banks  to  collect  on  their  loans  and  thus  ultimately  their  ability  to  lend.  In  addition, 

measures  taken  or  planned  by  the  authorities  to  gradually  reduce  and  eliminate  the  household 
insolvency  backlog  might  be  undermined 25.  Second,  there  is  a  risk  of  increasing  (re)defaults  of 

debtors  who  have  already  benefited  from  debt  restructuring  and  write-off  under  the  household 

insolvency law. Third, there is a risk of allowing debtors to benefit twice from debt restructuring and 

write-off. All of these risks in turn increase moral hazard risks.  

3.6  Valuation of security and property under the draft law 

The draft law introduces two different methods for valuing security and property26, leaves undefined 
the method for valuing assets that are relevant in order to determine negative eligibility27, and does 

not determine how the  ‘commercial’ value  of property will be determined,  when this term is used. 

This aspect of the draft law may give rise to increased litigation between creditors and applicants 

regarding  the  value  of  the  property,  which  may  in  turn  lead  to  longer  stays  on  enforcement.  In 

addition,  the  fact  that  the  draft  law  leaves  the  means  of  determining  the  commercial  value  of  the 

property  undefined  may  open  the  door  to  the  use  of  non-expert  witnesses  in  the  courts,  thus 

25  

26  

27  

In  June  2018 the  Greek  Ministry  of  Justice  produced  an  action  plan  containing  measures  to  gradually  reduce  and 
ultimately eliminate the household insolvency backlog of cases by the end of 2021, in accordance with the relevant 
policy commitment. See Annex to the Eurogroup Statement on Greece of 22 June 2018, available on the Council’s 
website at https://www.consilium.europa.eu. 
See Articles 3(1) and 3(2) of the draft law. 

See Articles 1(2)(e) and 1(2)(f) of the draft law. 

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encouraging  strategic  defaulters  to  apply  under  the  scheme.  Legal  certainty  for  the  valuation  of 

security and assets is of central  importance for the entire scheme as well as for the protection of 

secured creditors’ rights since the draft law determines eligibility to participate in the scheme based 

on  the  value  of  the  primary  residence  collateralising  such  debt  and  on  the  value  of  certain  other 
assets of the applicant 28.  

3.7 

Legal certainty 

3.7.1  Clear  formulations  of  the  rights  and  obligations  created  by  the  draft  law,  as  well  as  a  careful 

consideration  of  the  impact  of  the  draft  law  on  existing  legal  relationships  between  creditors  and 

debtors,  are  necessary  in  order  to  ensure  legal  certainty  and  prevent  moral  hazard.  There  are 

provisions in the draft law that suffer from legal uncertainty and could be helpfully reformulated in 
order to enhance clarity and reduce risks29. Legal uncertainty arising out of the draft law may lead 

to further delays in the restructuring process, necessitating an increased involvement of the courts 

in  the  application  of  the  draft  law.  Legal  uncertainty  may  also  provide  an  incentive  for  strategic 

defaulters  to  exploit  this  uncertainty  by  bringing  court  proceedings  under  the  draft  law  in  order  to 

benefit from the stay on enforcement.  

3.7.2  Added uncertainty arises from the wide range of discretions conferred on executive bodies involved 

in the restructuring process under the draft law. The draft law assigns to the Secretary for Private 

Debt the competence to  decide,  where the platform rejects an application, on eligibility  under the 

new  scheme,  subject  to  judicial  review.  The  following  issues  may  be  addressed  by  means  of 

ministerial decisions: the operating parameters of the online platform and details pertaining to the 

platform  restructuring  process;  the  contents  of  the  application,  the  list  of  documents  required  to 

support it and the deadlines for the submission of each; the conditions governing and the method 

for  calculating  the  amount  of  the  State  subsidy;  the  State  body  responsible  for  deciding  on  the 

State  subsidy  and  any  other  specific  matter  pertaining  to  such  subsidy.  The  way  in  which 

secondary 

legislation  will  determine 

the  operating  parameters  of 

the  platform  and 

the 

documentation  required  by  applicants  is  crucial  because  the  draft  law  appears  to  base  the 

restructuring  and  write-off  of  debt  through  the  platform  on  these  two  elements  without  giving 

creditors  the  opportunity  to  contest  the  amount  of  debt  as  declared  by  the  applicant,  or  to  justify 

their  refusal  to  offer  a  restructuring  proposal  (which  they  can  do  only  if  the  applicant  or  the  debt 

covered  by  the  application  is  ineligible)  on  the  basis  of  documentation  of  their  own.  This  is 

expected  to  lead  to  increased  litigation  regarding  the  exact  amount  of  debt  to  be  restructured 

and/or  the  eligibility  of  the  debtor  or  the  debt  covered  by  the  application,  with  the  implications 

described  in  the  previous  paragraph.  This  also  increases  the  necessity  to  safeguard  the  duty  of 

disclosure  at  the  application  stage  but  also  throughout  the  duration  of  the  restructuring  period. 

Lastly,  given  that  the  amount  of  the  State  subsidy  will  determine  the  collections  made  by  credit 

institutions under the scheme during the restructuring period together with payments made by the 

applicants, it is important to have legal certainty as to the elements related to the subsidy.  

28  
29  

See Article 7 of the draft law and paragraph 4 of Opinion CON/2012/70. 

See Articles 1(2)(c), 1(2)(d), 1(2)(f), 3(2) and 8(1), 9(2), 10(1), 12(2), 12(3), 11(3) of the draft law.  

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3.8  Compliance with basic legal principles and State aid rules 

It is for the Greek authorities to assess whether the draft law complies with applicable principles of 

Greek  constitutional  law,  including  the  basic  legal  principles  of  fairness,  equal  treatment  and 

proportionality. 

It is for the Commission to assess the draft law’s compliance with Union state aid rules. 

3.9 

 Regular reviews 

In order to ensure the effectiveness of the framework, an independent body should regularly review 

and  assess  the  effectiveness  of  the  scheme  by  reference  to  its  objectives,  its  impact  on  Greek 

credit institutions and the overall payment culture in the short and medium term, and its interaction 

with other laws. One year following its introduction might be a reasonable point at which to review 
the overall operation of the new scheme30. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 27 February 2019. 

[signed] 

The President of the ECB 

Mario DRAGHI 

30  

See also Opinion CON/2013/34. 

13