UK Furious At Proposed €7 Billion Greek Ponzi-Perpetuating Bridge Loan
The two most important stories out of Greece on Tuesday were: 1) the IMF’s leaked report on Greek debt sustainability, and 2) the race to secure between €7 and €12 billion in bridge financing to hold Greece over until the ESM gets off the ground.
Although a new program is in the works and should get the greenlight once Tsipras succeeds in forcing Greek lawmakers to legislate away their sovereignty and any semblance of pride they have left, Athens has bills that need paying, the most important of which comes due to the ECB (on its SMP holdings) on July 20. The Greeks must make the payment to Mario Draghi – otherwise the central would be compelled to interrupt the liquidity drip that’s keeping the Greek banking sector from collapsing altogether. There’s also the issue of public sector salaries and pension payments which Greeks would prefer to receive in euros as opposed to the IOUs suggested by German FinMin Wolfgang Schaeuble.
We outlined the options available for bridge financing on Tuesday morning, noting that all alternatives involve creditors effectively paying themselves either literally or in spirit or otherwise entail the perpetuation of some manner of ponzi scheme (i.e. allowing Greece to sell T-bills to Greek banks).
On Wednesday, the EU Commission decided to go the EFSM route and will look to tap €7 billion of the €11-12 billion that remains in the fund. The formal request by the EU Commission says the funds from the EFSM “aim to provide a bridge financing to allow Greece to face some urgent financial obligations until it starts receiving financial assistance under a new programme from the ESM [and] would safeguard financial stability in the Union and in the euro area.”
This isn’t as simple as it sounds. The EFSM was replaced by the ESM and wasn’t really supposed to be used again, so going back to the well is problematic from a political perspective. There are a number of issues here, but for the sake of brevity, here’s FT’s summary:
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