Brussels, 15/07/2015 (Agence Europe) - On Wednesday 15 July, despite the refusal of the non-eurozone countries, the European Commission proposed making use of the European Financial Stability Mechanism (EFSM) to the tune of €7 billion, in order to avoid a further non-payment by Greece on Monday 21 July.
The Commission is relying on the urgency of the situation and the guarantees it plans to give to the non-eurozone states to ensure that the option of using the EFSM, a financial mechanism it manages, is validated by all 28 member states (see EUROPE 11359). “Given the political, legal and time constraints, there are two options left: bilateral loans and EFSM, but there is no prospect of bilateral help”, explained the commissioner for the euro, Valdis Dombrovskis.
In order to appease the non-euro states, the Commission is looking into various options to guarantee the EFSM loan. These include using the profits made by the ECB in the framework of its SMP to buy back Greek sovereign bonds.
In order to win over the United Kingdom, the president of the Commission, Jean-Claude Juncker, is reported to have reminded the British prime minister, David Cameron, that he personally intervened when the UK found out, at the end of last year, that it had to pay exceptionally high additional contributions to the budget of the EU. At the time, the Commission proposed giving the states extra time to settle the amounts payable (see EUROPE 11223). It is in the same spirit that Juncker called for the support of the United Kingdom on Wednesday. As for the decision of the European Council of December 2010, which was invoked by London, of no longer using the EFSM to guarantee the stability of the eurozone, Dombrovskis explained that it was above all a matter of helping out a member state.
Greece and its creditors have five days to get €7 billion together. €4.2 billion will be used to pay back the ECB. The emergency liquidity (ELA) available to the Greek banks hangs in the balance. With its priority creditor status, the IMF is also expecting to receive the €2 billion Greece should have paid it at the end of June. It will not be able to get involved in any further assistance to Greece unless the country settles its arrears. The Bank of Greece, for its part, is awaiting €500 million.
If the 28 agree for the EFSM to be used, it will raise the amount required on the markets, in the form of low-interest loans with a maximum term of three months. The envelope of €7 billion will be paid back using the financial assistance of the ESM in the framework of a third bailout plan, which Athens and its creditors hope to negotiate in the very near future. According to the Commission, the talks will take a month at the outside (17 August). The aim is to allow the ESM to release a tranche of aid in order to allow Athens to pay €5 billion back to the ECB and the IMF at the end of August. According to the commissioner, “the rest of the bridge financing will depend on how quickly the ESM programme can be decided upon”.
On Wednesday, the Greek Parliament was called upon to adopt the measures laid down by the eurozone summit as a prerequisite for talks on a third bailout plan to begin (see EUROPE 11258). The day before, the Greek prime minister, Alexis Tsipras, took responsibility for an agreement in which he does not himself believe. This agreement has created waves within the government majority: Deputy Minister Nadia Valavani has resigned and the president of the Greek Parliament, Zoe Konstantopoulou, called for the agreement to be rejected.
It was will not be until after the Greek Parliament stage that some governments - such as the Bundestag - will be called upon to take position on further support to Greece. If these two stages are completed successfully, then the eurozone finance ministers will decide to open talks with Athens.
As for the warning issued by the IMF over the Greek debt, Dombrovskis pointed out that the viability assessment of the three 'institutions' (Commission, ECB and IMF) flagged up concerns on this subject and that the eurozone had reiterated its intention of focusing on this issue. However, with their favourable terms, the eurozone loans are not currently a major burden on the Greek budget, he added.
Structural funds: Athens granted three exceptional measures.
In order to respond to the urgency of the Greek situation, the commissioner for regional policy, Corina Cretu, has detailed three “exceptional” measures which will allow Athens to make better use of the support it receives from the structural and investment funds.
First of all, the Commission is planning to pay, before 2017, the last 5% of the payments previously still blocked in the framework of the period 2007-2013. This measure will make it possible to release €800 million immediately, “as soon as the rules are adopted”, the commissioner explained.
Secondly, the EU will cover 100% of the co-financing for the whole of the period 2007-2013, which will allow €500 million to be made available immediately. Eventually, the Greek state will have to make total savings of around €2 billion, according to the Commission's estimates. It is worth noting that the Hellenic Republic already benefited from a specific arrangement, as European co-financing had been raised to 95% of the total cost of investments for 2007-2013 until the end of the first half of 2016, corresponding to a 10-point difference compared to the rates normally applied.
The third measure put forward by the Commission is to increase the rate of pre-financing (which allows the first payments to be made at the very start of the period to make it easier to get the various projects off the ground) to be increased to 3.5% in 2015 and 2016. The money coming through early would stand at around €1 billion, according to the Commission's calculations. Today, the pre-financing rate in force for Greece is that applied to the countries which benefited from a macro-economic adjustment programme, or 1.5%. Greece was to benefit from this rate until 2015, after which the standard rate of 1% would apply from 2016 onwards. The youth employment initiative (YEI) will not be affected, as its pre-financing rate has already been laid down at 30% (see EUROPE 11320).
Since the end of March 2015, Greece has been the subject of intensive support from a high-level group under the leadership of Dombrovskis to help the country to absorb the 2007-2013 money before the end of this year. Greece has produced excellent results: its absorption rate has risen from 69.9% in 2013 to 91.1% currently. The country also receives technical support from the 'structural reforms support service', which has been up and running since 1 July, to prepare its operational programmes for 2014-2015.
In accordance with the decision of the eurozone summit, an envelope of €36 billion will be made available for the period 2014-2020: - €20 billion from the structural and investment funds (€8.3 billion from the ERDF, €3.2 billion from the Cohesion Fund, €3.6 billion from the European Social Fund, €172 million from the Youth Employment Initiative, €4.7 billion from the European Agricultural Fund for Rural Development); - €15 billion from the European Agricultural Guarantee Fund.
The money will be broken down as follows: - €15.1 billion to support farms; - €5.1 billion to the maritime and agricultural sector; - €11.7 billion for structural investments; - €4.1 billion for employment and social inclusion. Around €4.4 billion has already been paid out in 2014 and 2015.
The Commission's position has moved on considerably in the space of just a few weeks. Although the Commission assured EUROPE two weeks ago that the structural and investment funds would not be impacted by the current Greek crisis, the latest developments show that there is the leeway for some budgetary chopping and changing in order to “take the pressure off the budget of the Greek state”, a source explained to EUROPE.
The Council and the European Parliament have now to agree on their positions, most likely in September. (Elodie Lamer and Pascal Hansens)