Greece to get €7 billion EU bridge loan

By Zeke Turner

Greece needs short-term financing to keep the economy afloat and repay debts while its new third bailout is being negotiated.

The European Union will lend more than €7 billion to Greece so that it can cover critical debt repayments in coming weeks, Commission Vice President Valdis Dombrovskis announced Wednesday in Brussels.
Before a third bailout package can be put in place, Greece has major short-term financing needs including €7 billion by July 20 and a further €5 billion by the middle of August, according to estimates agreed by eurozone leaders at the summit that ended early Monday. Greece already owes close to €1.6 billion in back payments to the International Monetary Fund.

The funds will come from the European Financial Stability Mechanism (EFSM), an instrument that allows the Union to borrow up to €60 billion on financial markets using the EU budget as a guarantee. The EU can then lend those funds onward to member countries in financial distress.
Dombrovskis said the EFSM money will be used “to build the bridge needed from up to 3 months.”
Non-eurozone countries Britain and the Czech Republic have objected to using a mechanism backed by all 28 EU members to assist eurozone member Greece, but Dombrovskis said the Commission was in the process of “discussing how to collateralize this loan or guarantee this loan so non-euro area member states can be sure this decision has no consequences for them.”
U.K. Chancellor George Osborne was adamant during meetings in Brussels Tuesday that “the eurozone needs to foot its own bill.”
Bridge financing has to cover the span of at least four weeks, the time it will take for the details of the latest bailout package to be negotiated, according to German Finance Minister Wolfgang Schäuble.
Since European leaders agreed to begin negotiating a new rescue pacakge for Greece after their marathon summit, the eurozone as assembled a technical team to examine the question of bridge financing, which could have drawn money from a number of sources, some more complex than others.
On the simpler end, European countries could provide bilateral loans to Greece to survive the near term payment obligations, although many are loathe to continue pumping cash into a country.
“This is not an easy option,” Dombrovskis said about the EFSM loans. “We are aware of serious concerns from non euro area member states.” Countries like the UK are strongly opposed to the use of EU funds to provide bridge financing to Greece, but the decision can move foward with a qualified majority.
The loans will be paid back to the EFSM by the euro area’s bailout fund by the ESM once the new rescue package is finalized, in order to protect non-euro states in the EU from a default.