Brussels, 14/07/2015 (Agence Europe) - It is all 28 member states, rather than the 19 Eurozone members, which are discussing the possible options for bridge financing to allow Greece to honour its immediate financial obligations, whilst negotiations on a third bailout plan unfold.
At the Ecofin Council of Tuesday 14 July, several countries which are not in the eurozone - led by the United Kingdom - made clear their objections to the European Financial Stability Mechanism (EF) being used to prevent Athens from missing another payment on Monday 20 July. The European Commission, which manages this mechanism on behalf of the EU, is nonetheless pushing for this option to be chosen. On Tuesday, the Economic and Financial Committee of the Council, which is made up of all 28 member states, looked at the various options available, rather than the euro working group.
Six options on the table. There are reported to be six options on the table. However, by taking account of the various combinations or sub- categories, there could be around a dozen solutions in total.
The Commission's preferred option is to use the EFSM, because this would be the fastest. This mechanism was used to come to the rescue of Ireland and Portugal, for a total amount of €48.5 billion. An envelope of €11.5 billion would be available (the Commission says just above €13 billion).
According to the Eurozone Summit declaration which paved the way for talks to start on a third bailout plan under the European Stability Mechanism (ESM) (see EUROPE 11358), Greece has to pay back €7 billion on 20 July and €5 billion in mid-August. The date of 20 July is the critical one: that is when Greece is to pay back €4.2 billion to the ECB, or the monetary institute will cut off its emergency funding (ELA) to the Greek banking system, which is already idling, leading to its collapse.
As the IMF is a priority creditor, it has to be paid back the first. Greece's arrears to the IMF stand at €2 billion, after Greece missed a second payment of €456 million to the institution on Monday. The board of directors of the Washington-based institution was immediately notified by this, the IMF announced in a press release on Tuesday. Over the next few weeks, the IMF board will discuss Greece's request for extra time to pay back the €1.6 billion due on 30 June of this year. Athens also has €500 million in arrears to the Bank of Greece.
At the Ecofin Council on Tuesday morning, the United Kingdom, Sweden and the Czech Republic firmly explained why they are so reluctant to use the EFSM to shore up Greece. According to the Spanish Finance Minister, Luis De Guindos, Denmark also expressed reservations.
The United Kingdom referred to the conclusions of the European Council of December 2010, which clearly state that the ESM “will replace the European Financial Stability Fund (EF) and the European Financial Stability Mechanism (EFSM), which will be maintained until June 2013” (see EUROPE 10280). The Commission's response was that the EFSM can be reactivated. The conditional measures to be taken in order to receive short-term support from the EFSM do not appear to be any less stringent than those in place for recourse to the ESM.
Given the level of Greece's requirements, the profits generated by the ECB in the framework of the 'SMP' and 'ANFA' programmes will not be enough, even anticipating the profits anticipated in 2016 and 2017.
The issue of bilateral loans is also a possibility, but it appears that only France and Italy would be prepared to make a gesture. The idea of bilateral loans guaranteed by the 'SMP' profits could be a variation on the previous option.
Increasing the upper limit on the Treasury bills the Greek state is allowed to issue could also be an idea, but this decision is out of the ECB alone. As the Greek banks are less and less solvent, it is by no means clear whether they would be able to buy the short-term Greek debt instruments. The question of feeding more liquidity into the Greek banks in order to do so is also a matter for the competence of the ECB. On Monday, the ECB opted to maintain the status quo on the question of emergency liquidity (ELA) to the Greek banks.
The possibility of dipping into the EU budget would be “highly regulated”, De Guindos explained.
Germany is reported to have proposed a solution consisting of issuing 'IOUs' (recognitions of debt) and this idea is believed to be vaguely on the table. The College of Commissioners was due to meet, theoretically on Tuesday evening, to present a possible proposal.
Pierre Moscovici, the European Commissioner for Economic Affairs, explained on Monday that there could be a “range of proposals”. The most likely scenario is a combination of several of the options on the table.
For the third bailout plan, it is reportedly anticipated that the ESM would contribute between €40 and €50 billion, whilst Greece's financing needs for the next three years are in excess of €80 billion.
In the IMF programme for Greece, which runs until March 2016, there is €16 billion left. The outlines of the IMF's involvement in the third bailout plan are not yet clear. It is worth noting that in the bailout plan for Cyprus, the IMF's participation is 10%.
It is also hoped that Greece will once again secure access to the medium- and long-term debt market in the next three years and generate consistent income from privatisations to service its debt.
The IMF incidentally set the cat among the pigeons once again, with an internal note sent on Monday evening to the eurozone states regarding the Greek debt. This note, which has been reported by Reuters, basically states that any relief of this debt would have to go “a long way beyond what has been under consideration so far”. This, for instance, would mean a 30-year grace period on the European loans, or agreeing to direct cuts. The IMF predicts that the Greek debt will stand at 170% of Greek GDP in 2022, compared to 150% predicted in the base scenario calculated by the three 'institutions' (Commission, ECB and IMF). A new analysis of the viability of the debt will be carried out for the third bailout plan.
The Eurogroup also hopes that all national parliaments which need to do so will be able to vote on Thursday so that a telephone conference of the Eurogroup may decide to launch negotiations. Before this can happen, the Eurogroup must note that the conditions for the negotiations to kick off have been met, most likely on Thursday morning. Slovakia will not be voting, its minister, Peter Kazimir, clarified on Tuesday. (Elodie Lamer with MB)