Wednesday

8th Feb 2023

UK to accept Greek short-term loan

  • Juncker (l) gave Cameron (r) guarantees over future EU reforms (Photo: Consillium)

The UK will not oppose a €7 billion emergency loan for Greece following a deal with the European Commission that interweaves the EU’s two major political headaches: Grexit and Brexit.

Britain's chancellor of the Exchequer George Osborne will back the use of the European Financial Stabilisation Mechanism (EFSM) to provide short-term cash for Greece, according to British media.

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In exchange, the Commission will make sure that Britain's money will not be exposed in case of a Greek default. It also said it would help Britain in its negotiations on EU reforms.

The decision to lend Greece €7 billion is to be taken by EU finance ministers in a conference call on Thursday morning.

According to EFSM rules, the three-month loan must be guaranteed by all 28 member states, something the UK rejected.

"The idea is a complete non-starter. The eurozone needs to foot its own bill," Osborne said Tuesday.

But EU sources said Wednesday that an alternative solution could be found, involving so-called SMP profits, the profits made by the European Central Bank (ECB) and national central banks on Greek bonds they have bought.

Technicality

The use of SMP profits would spare Britain's liabilities in the EFSM, which amount to about €900 million.

The UK also noted that a 2010 decision by EU leaders ruled out any use of the EFSM to bail out a eurozone country.

But at a press conference on Wednesday, EU Commission vice-president Valdis Dombrovskis said that there was a "technicality" about the interpretation.

While the Council decided the EFSM would not be used to "safeguard the financial stability of the eurozone as a whole", the mechanism would be now used now to help just one country, Dombrovskis said.

Britain's opposition was also softened after talks with commission president Jean-Claude Juncker.

"Juncker told Britain he would support them on other issues," an EU diplomat said Wednesday, referring to the upcoming talks on EU reforms demanded by the British prime minister David Cameron before the country hold an referendum on EU membership.

Juncker also reminded Cameron that he helped change the rules of the EU’s multiannual budget last year, so that Britain would not pay an unexpected extra €2 billion, the source said.

Compromise

While non-eurozone Britain was kept away from Greek crisis talks and bailouts, the €7 billion loan with a British guarantee would have been in contradiction with election promises made by Cameron.

"We took Britain out of eurozone bail-outs, including for Greece – the first ever return of powers from Brussels," said the Conservative party manifesto for the 7 May election.

Cameron was already under pressure from his eurosceptic wing, with former minister John Redwood saying the commission's plan was "an absolute outrage and a slap in the face".

However the compromise allows the EU to finance Greece. And it allows Britain to be cooperative without opening an EU debate at home and being isolated and weakened in Brussels.

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EU member states agreed on the modalities of a short-term financing which will allow Greece to repays its debt to the IMF and ECB.

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