Wednesday

30th Nov 2022

UK to block Greece short-term funding solution

  • UK's Osborne (c) opposes use of a EU fund to fund Greece, while Germany's Schaeuble (l) proposes debt IOUs and France's Sapin (r) could propose a bilateral loan. (Photo: Council of the EU)

In the wake of the agreement reached Monday (13 July) for a new bailout for Greece, the focus today is on how to provide Greece with short-term funding.

EU finance ministers will discuss the issue on Tuesday at a meeting in Brussels, with the UK saying it would oppose any solution that would include British taxpayers' money.

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"This is very complex. We looked at a number of possibilities. There are technical, legal, financial and political issues to consider," Eurogroup president Jeroen Dijsselbloem said on Monday after a Eurogroup meeting.

According to Greece's creditors - the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF) - Greece needs €7 billion before Monday (20 July) and another €5 billion by mid-August.

On 20 July, Greece must repay €4.2 billion to the ECB.

It has also to repay a missed €1.6 payment to the IMF, plus a €456 million repayment missed on 13 July. Financial needs also include the payment of pensions, civil servants salaries, and arrears to state providers.

Several solutions have already been aired, including a EU commission proposal to revive the European Financial Stabilisation Mechanism (EFSM).

The EFSM is an emergency fund created in May 2010 with guarantees from all EU 28 member states and was used to bail out Ireland and Portugal.

In 2012, alongside the eurozone-only European Financial Stability Facility (EFSF), it was replaced by the European Stability Mechanism (ESM), the body that will provide the third Greek bailout.

An EU official said Monday that €13 billion remained in the EFSM fund and that €2 billion or €3 billion could be used for the bridge-financing for Greece.

Even before the issue was discussed by finance ministers on Tuesday, the British chancellor of the exchequer, George Osborne, called European colleagues to express his opposition to the idea, according to British media.

"The idea that British taxpayers' money is going to be on the line in this latest Greek deal is a non-starter", a British treasury official was quoted as saying.

"Our eurozone colleagues have received the message loud and clear that it would not be acceptable for this issue of British support for eurozone bailouts to be revisited."

British officials note that in December 2010 the EU decided at British PM David Cameron's request that the EFSM would not be used to bail out eurozone countries once the ESM was put in place.

A diplomatic source said Monday that Poland too would oppose the use of EFSM to provide emergency cash for Greece.

The source added that even some eurozone countries are wary of the bridge-funding idea, saying Greece has enough money to meet its short-term needs.

Other solutions to provide the bridge-funding have been aired, for instance, the use of SMP profits - the profits made on Greek bonds by the ECB and eurozone national banks - or bilateral loans to Greece from countries including France and Italy.

"I foresee those negotiations being very difficult because I don't see many countries having a mandate to give money without any conditions", Finnish finance minister Alex Stubb said Monday.

Arriving at the Ecofin meeting on Tuesday, Luxembourg finance minister Pierre Gramegna said there is "no ready product on the table yet" and that ministers would listen to experts from the euro working group who have been tasked to work on the issue.

According to Germany's Handelsblatt newspaper, German finance minister Wolfgang Schaeuble proposed at Monday's Eurogroup that Greece issues IOUs to repay its debt to the IMF and ECB.

This proposition will be controversial with other member states, especially France, which strongly support Greece ongoing membership in the eurozone.

On the one hand, IOUs could be a solution to decrease the amount of money Greece's partners would have to provide, assuming that the ECB and IMF accept them.

But on the other hand, they would be a first step towards issuing a parallel currency, which could lead to a de facto euro exit.

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