European Council approves €7 billion bridge loan to Greece

On 17 July 2015, the Council adopted a decision granting up to €7.16bn in short term financial assistance to Greece under the European Financial Stabilisation Mechanism (EFSM). 

The loan will have a maximum maturity of three months and will be disbursed in up to two instalments. It will allow Greece to clear its arrears with the IMF and the Bank of Greece and to repay the ECB, until Greece would start receiving financing under a new programme from the European Stability Mechanism (ESM).

Eurogroup President Jeroen Dijsselbloem  welcomed the fact that the steps needed to open the way for negotiations on financial support to Greece have been taken.

These steps are a follow-up to the agreement reached by the Eurozone countries and the Greek government last Monday. "This agreement offers a chance to put the Greek economy back on track," Dijsselbloem said.

Last Wednesday the Greek parliament agreed on measures needed to stabilize and improve the current economic and financial situation in Greece.

The decision of the Board of Governors followed the successful completion of the procedures required from national parliaments.

Dijsselbloem, who also chairs the ESM Board, said that the steps taken over the last few days should gradually restore trust between the Eurozone countries and Greece: "It's not going to be easy. We are certain to encounter problems in the years to come. But I believe we will be able to resolve them."

On 16 July the Eurogroup decided in principle to agree to a request made by Greece on 8 July 2015 for stability support over three years from the ESM. Once negotiated between the institutions and Greece and approved by the Eurogroup, the ESM assistance would be used, amongst other things, to repay the loan Greece receives under the EFSM. 

The Council also adopted a decision approving a macro-economic adjustment programme setting out specific economic policy conditions attached to the financial assistance. The reforms undertaken by Greece are aimed at improving the sustainability of its public finances and the regulatory environment. Specifically, Greece was required to adopt legislation to reform its VAT and pension systems, strengthen the governance of the Hellenic Statistical Authority (ELSTAT), and implement by 15 July 2015 the relevant provisions of the Treaty on Stability, Coordination and Governance. The adjustment programme will be set out in a memorandum of understanding (MOU).  

The financial assistance would be disbursed once the MOU and a loan facility agreement setting out in detail the financial terms have entered into force. Both are to be signed by the Commission and the Greek authorities.  

A mechanism has been designed so as to ensure that non-euro area member states do not carry any risk. Under the decision, the exposure of non-euro area member states will be fully guaranteed by liquid collateral under legally binding arrangements. If Greece were unable repay the loan in accordance with its terms, any liabilities incurred by non-euro area member states would be immediately reimbursed.  

The Council and the Commission also adopted a joint declaration agreeing that "any future use of the EFSM Regulation or any other instrument of a similar nature, for the purpose of safeguarding the financial stability of a Member State whose currency is the euro, will be made conditional upon arrangements (via collateral, guarantees or equivalent measures) being in place which ensure that no financial (direct or indirect) liability will be incurred by the Member States which do not participate in the single currency.

“In order to reflect this principle, the Commission will make a proposal for the appropriate changes to the EFSM Regulation as soon as possible, which shall be agreed in any case before any other proposal for support under the EFSM Regulation is brought forward. Moreover, the Commission commits not bringing forward any proposal for the use of the EFSM without a mechanism for the protection of the Member States whose currency is not the euro being assured.”