Brussels, 12/04/2010 (Agence Europe) - By making the technical modalities that will enable them to support Greece official, eurozone member countries have clarified the main zones surrounding the mixed mechanism decided on during the European Council. These explanations are necessary to provide a rapid response in the event of calls for assistance from Greece. They are also welcome, given the level of scepticism displayed by the markets recently.
Details of the mechanism were decided on Sunday 11 April by the Eurogroup. As part of the joint programme with the International Monetary Fund (IMF), which will last for three years, the eurozone countries say they are prepared to provide bilateral loans of up to €30 billion over the first year. The amounts available later will depend on Greece's possible needs and the sum made available by the IMF has not yet been clarified in this connection. Nonetheless, if we look at the figure mentioned by the Europeans at the last summit, IMF participation may correspond to a third of the total envelope - €15 billion. On Sunday, however, eurozone member states agreed on the formula decided on for calculating the interest rates for loans from member states. According to a written declaration, the variable rate loans will be based on the “Euribor” for three months and the fixed rate loans will be based on Euribor swaps for corresponding periods. A charge of 300 base points will be applied and 50 additional base points will be added to cover the costs of the lending service. Finally, interest rates of above three years will be subject to 100 base points maturity. A three year fixed rate loan could therefore be granted at a rate of around 5%, indicates the declaration, based on the rates on 9 April (Greece has to meet rates that are currently above 7%).
The role of the Commission will be to coordinate and centralise funds, although the European Central Bank (ECB) will be the paying agent, explained Jean-Claude Juncker to the press following a teleconference meeting. In compliance with the declaration made by the eurozone leaders on 25 March last, the contribution from the eurozone member states will be calculated on the level of their stake in the ECB's capital. The Eurogroup president again provided assurances that “all eurozone member states will participate in the mechanism”. Loan pricing will be based on the formula used by the IMF and this price does not contain any element of subsidy. Juncker insisted that “if the mechanism needs to be activated, it will not be in violation of the 'no bail out' rule because it involves a repayable loan, devoid of subsidy”. He believes that Greece should return to normal market financing as soon as possible and welcomed the fact that no mechanism activation decision had been taken “but we are already up and running”. If support proves necessary, Juncker said that the right of initiative for activating the mechanism rests in the hands of the Greek government because the procedure would involve unanimous agreement at the Eurogroup (on the basis of a joint Commission/ECB assessment) and payments would be decided by participant member states. Most technical details have now been resolved and discussions are continuing. Olli Rehn explained that “the Commission, in liaison with the IMF, will now cooperate with the Greek authorities to elaborate the concrete elements of a programme”. On the basis of the mandate granted by the Eurogroup, a first meeting of experts was due to take place on Monday 12 April in the afternoon in an effort to clarify the conditions that will be requested from Greece. The declaration written on Sunday explains that the Commission, in liaison with the ECB will begin work on Monday 12 April with the IMF and Greek authorities, on a joint programme (including the amounts and conditions based on recommendations made by the Ecofin Council in February).
The question of what effect the clarifications made on Sunday will have on the markets, compared to those made previously by ministers and heads of state, remains to be seen. Juncker said that decisions made today are different. In the past they made decisions of principle but this time “we are establishing the details of the mechanism that would be launched”. He believes that this involves a clarification stage expected from the markets and “it shows there is money behind this”. Since the announcement of the support mechanism modalities, the markets appeared to be less tense on Monday with regard to the spread demanded for Greek bonds and German loans. These precisions received the support from European leaders, who are expecting them to have a calming effect. In a press release, the president of the European Council, Herman Van Rompuy, welcomed the agreement reached by eurozone finance ministers, which makes “the mechanism totally operational in conditions that should decisively help contribute' towards financial stability in Greece and the eurozone. José Manuel Barroso, the president of the Commission said that they showed that the eurozone was serious and doing what was necessary to ensure stability of the financial system. He also underlined that Greece would continue to robustly correct the imbalance in its public finances and implement the necessary structural reforms. (A.B./transl.fl)