Thursday

26th May 2022

EU commission proposes controversial short-term funding for Greece

  • The €35 billion plan will focus on infrastructure and innovation (Photo: ec.europa.eu)

The EU commission has proposed providing Greece with a bridging loan from a bailout fund in spite of strong opposition from London and Prague.

For the short term, the Commission proposed that the €7 billion Greece needs to get it through July come from the European Financial Stabilisation Mechanism (EFSM).

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Created in 2010, the EFSM was used to bail out Ireland and Portugal and has not been used since the creation of a permanent bailout fund, the eurozone-only European Stability Mechanism (ESM), in 2012.

The money will be lent to Greece for three months, and will be repaid when the ESM bailout Greece requested last week is in place.

The commission hopes the bailout negotiations will be concluded by 17 August, just two days before Greece will need another €5 billion to meet its debt commitments.

The bailout talks, according to the agreement reached at the euro summit Monday morning (13 July), will start as soon as the Greek Parliament votes a series of "prior actions" and several national parliaments approve the opening of negotiations.

The EFSM is guaranteed by all EU 28 member states, not only by eurozone countries, and the idea of using EFSM money for bridge financing has been opposed by several member states, especially Britain and the Czech Republic.

"Leaders from across the EU agreed in 2010 that the EFSM would not be used again for those in the euro area and that remains the prime minister’s view," a UK government spokesperson told the Guardian.

British PM David Cameron told parliament Wednesday: "It's not for Britain to bailout eurozone countries, and we wouldn't do that."

"This is not an easy option," Commission vice-president Valdis Dombovskis admitted at a press conference and said experts are working on trying to make sure there are "no negative consequences" for non-euro states.

"Given the political, legal, financial and time constraints" he said that it was either the EFSM or a bilateral loan.

But given that "there are currently no prospects for any bilateral help, […], the best possible avenue left is the EFSM programme," he said.

The EFSM loan will have to be approved by the 28 finance ministers, probably at a conference call.

It will be decided by a qualified majority, where the UK's opposition could be overruled.

The commission also presented a longer term "plan for jobs and growth for Greece" of more than €35 billion.

Some €20 billion will come for the European Structural and Investment Funds and €15 billion from the Common Agricultural Policy. The rest will come from the Youth Guarantee programme and EU budget pots.

The focus for investment will be on innovation and research as well as infrastructure works, funding for SMEs as well as help for training for young unemployed.

These funds "will not solve Greece's liquidity problem but can provide a basis for an exit of the crisis," regional commissioner Corina Cretu said.

As the Greek parliament is set to vote a first series of reforms on Wednesday, Crete noted that "these reforms alone cannot bring Greece back to the path of growth and jobs. The reforms must be coupled with an investment plan".

The €35 billion plan comes from the 2014-2020 EU budget, where funds were already available for Greece.

But the country will get some favourable conditions.

The commission will speed up reimbursement of spendings from the 2007-2013 programmes. It will also increase the rate of pre-financing for 2014-2020 programmes by 7 percent.

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