Brussels: The EU approved a short-term loan of USD 7.8 billion to Greece allowing it to meet a huge payment to the ECB and repay the IMF while a new bailout is still being ratified, the EU’s top official for the euro said today.
“We have an agreement on bridge financing…. This agreement is backed by the 28 member states,” Commission Vice President Valdis Dombrovskis told reporters. Greece must pay the European Central Bank a huge debt payment of 4.2 billion euros as early as Monday, and is in arrears to the IMF.
The bridging loan allows Greece to clear its debt to the IMF and to repay the ECB while the modalities of a fresh bailout, agreed in principal by European leaders on Monday, is still under negotiation.
“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),” the European Council, which represents the bloc’s 28 member states, said in a statement referring to the EU’s bailout fund.
The loan will be given through the EFSM, a rescue fund set up at the time of Greece’s first bailout in 2010 but that involves the whole of the 28-nation EU, not just the 19 eurozone members.
The loan will officially be for three months, but only provide enough cash to hold Greece over until August 20, when the country owes the ECB another huge debt payment. Britain yesterday dropped its opposition to the emergency EU loan to Greece after reaching a deal that would, it said, protect it and other non-euro countries against potential losses.
Prime Minister David Cameron of non-euro Britain had insisted that his country would not be responsible for bailing out Greece, echoing comments by finance minister George Osborne who said the plan was a “complete non-starter”.
The use of the EFSM risked causing a headache for Cameron as he seeks to renegotiate Britain’s membership of the EU ahead of an in-out referendum by 2017.