Europe Provides Bridging Loan To Greece Ahead Of Likely Third Bailout Talks

GreeceEurope moved to re-open funding to Greece’s stricken economy on Thursday after the parliament in Athens approved a new bailout program in a fractious vote that left the government without a majority.

The European Central Bank increased emergency funding for Greek lenders, although capital controls will have to remain in place to avoid a run on the banks when they reopen on Monday.

European Union finance ministers also approved 7 billion euros ($7.6 billion) in bridge loans to Greece, allowing it to make a bond payment to the ECB next Monday and clear its arrears with the International Monetary Fund.

The loans will be finalised on Friday provided Germany’s parliament approves a Berlin government request to open talks on a three-year bailout program, Greece’s third in the past five years, worth up to 86 billion euros.

A majority of Germany’s conservative lawmakers voted in favor of starting talks on a third Greek bailout in a test ballot on Thursday, the eve of a vote in the Bundestag lower house of parliament, sources in the conservative parliamentary faction said.

In the test ballot, 48 lawmakers in the conservative bloc opposed talks on further Greek aid while three abstained, the sources said.

The conservative bloc, composed of Chancellor Angela Merkel’s Christian Democrats (CDU) and their Bavarian allies, the Christian Social Union (CSU), has more than 300 seats in parliament but it was not clear how many conservative lawmakers were at the test vote.

The Bundestag is expected to give Merkel’s government a mandate to open negotiations, with the Social Democrats – her junior coalition partner – and some opposition parties expected to vote ‘Yes’.

The twin lifelines were a reward for Greek Prime Minister Alexis Tsipras after he won the backing of parliament in the early hours of Thursday for the tough reform measures demanded by creditors led by Germany.

Tsipras was weakened by a revolt in his left-wing Syriza party, who voted against the measures, forcing him to rely on opposition votes to pass the package. He is expected to reshuffle his cabinet to replace four ministers and deputy ministers who rebelled.

German Finance Minister Wolfgang Schaeuble, one of Greece’s toughest critics, questioned whether Athens would get a third bailout, even after the parliamentary vote. He suggested its financing needs were spiraling and a debt “haircut” or write-off , outside the euro zone might be a better solution.

“We will now see in the negotiations whether there is even a way to get a new program, taking into account financing needs, which have risen incredibly,” Schaeuble told Deutschlandfunk radio.

After meeting with SPD politicians in Berlin, Eurogroup President Jeroen Dijsselbloem said he would like discussions about a possible Greek exit from the euro zone to stop and he hoped German lawmakers would support opening talks on further Greek aid in the parliamentary vote on Friday.

The move by the Greek parliament was enough to persuade the ECB to raise Emergency Liquidity Assistance (ELA) for the banks by 900 million euros for a week to nearly 90 billion euros.

“Things have changed now,” ECB President Mario Draghi told a news conference in Frankfurt. “We had a series of news with the approval of the bridge financing package, with the votes, various votes in various parliaments, which have now restored the conditions for a raise in ELA.”

Deputy Finance Minister Dimitris Mardas said the ECB support would allow banks to re-open, three weeks after they were closed when Athens imposed capital controls to prevent a flood of withdrawals collapsing the banking system. “All the banks everywhere will be open,” he told state television.

Cash withdrawals, currently limited to 60 euros a day, are likely to remain restricted.

Finnish and Lithuanian lawmakers on Thursday gave their approval to begin negotiations.

After a warning from the IMF this week that Greece’s massive public debt could not be managed without a significant writedown, Schaeuble said a debt haircut was incompatible with euro membership and would mean Greece would have to leave the euro, at least temporarily. “But this would perhaps be the better way for Greece,” he said.

European finance ministers said after a conference call on Thursday morning they agreed “in principle” to start talks with Greece on the new bailout and called on Athens to adopt a second set of reforms by July 22.

All 28 EU countries are expected to contribute to the bridge loan, despite reluctance of non-euro members such as Britain and the Czech Republic, after a compromise was found to use euro zone funds to guarantee their ring-fenced contributions.

Britain accepted the deal after receiving what its finance minister, George Osborne, said was a legally binding deal to protect any British money used in the loan.

The Greek parliament comfortably approved the agreement Tsipras struck on Monday with the euro zone that demands austerity measures and economic reforms tougher than those rejected by voters in a July 5 referendum.

Some of the main measures, including an increase in value-added tax, take effect immediately, although it will be extended to hotels in October after peak tourist season.

The IMF noted the issue of debt relief in a report released this week, saying the only alternatives to “deep upfront haircuts” would be for European creditors to grant Athens a 30-year debt service holiday on present and future loans or make large annual fiscal transfers to the Greek budget.

Those options are unpalatable to German and other euro zone creditor governments that do not want to tell their taxpayers that money lent to Greece is not coming back.

The rest would come from 16 billion euros in remaining undisbursed IMF funds, once Athens has cleared the arrears, as well as privatization receipts and possible limited borrowing on financial markets near the end of the three-year program.

Schaeuble said in a letter to the president of Germany’s Bundestag lower house of parliament that the IMF would not be involved in payment of a first tranche of a third Greek bailout.

That tranche is due in mid-August 2015, according to the letter, in which Schaeuble asked parliament to agree to open talks on a third bailout.

The letter said the IMF would make its further involvement dependent on successful conclusion of the first program review in autumn 2015 and confirmation of Greece’s debt sustainability.

But Merkel’s chief of staff, Peter Altmaier, said on a German television talkshow late on Thursday that IMF Managing Director Christine Lagarde had “made very clear that the IMF will not withdraw” from bailing out Greece.

He said the German government had “quite clearly said that the IMF must remain on board, that the IMF must be involved”.

 

Advertisements

, , , , , , , , , ,

  1. Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: