Britain’s government is trying to stop the country from indirectly giving Greece any more cash as it says that the latest bailout agreement is a “non-starter.”
According to UK Treasury sources, as cited by the Guardian, Chancellor George Osborne is in the process of trying to block the European Union from drawing out more cash from a certain emergency fund, which contains British money, the European Financial Stabilisation Mechanism (EFSM).
“Our eurozone colleagues have received the message loud and clear that it would not be acceptable for this issue of British support for eurozone bailouts to be revisited. The idea that British taxpayers’ money is going to be on the line in this latest Greek deal is a non-starter,” said a government source to the Guardian.
On Monday July 13, Greece finally reached a deal with its creditors. However, the bailout deal was a massive climb-down on what the government wanted, and even more austere than previous bailout agreements the country has signed up to.
Greece must make cuts to its pension industry, liberalise some protected sectors of the economy, and conduct a review into its labour market, among other reforms. It even has to raise around €50 billion (£35.5 billion, $US54.9 billion) by hawking off valuable assets, as stipulated by creditors, to help re-fuel its battered banking system.
It will also be used to pay back an extra loan Greece secured in this latest round of bailout talks:
Valuable Greek assets will be transferred to an independent fund that will monetise the assets through privatisations and other means. The monetisation of the assets will be one source to make the scheduled repayment of the new loan of ESM and generate over the life of the new loan a targeted total of EUR 50bn.
The ESM is the European Stabilisation Mechanism has a lending capacity of €500 billion (£355 billion, $US550 billion) and is used as an emergency back stop for countries in need of cash. The UK does not contribute to this fund.
However, Britain does indirectly contribute to some countries’ bailouts through the separate emergency fund called the European Financial Stabilisation Mechanism (EFSM). The Guardian’s report suggests that the British government is worried that Greece will start needing more cash from the EFSM fund.
The deal was particularly austere and strict this time round because Greece defaulted on a €1.6 billion (£1.1 billion, $US1.8 billion) payment on June 30, which ravaged its credibility and credit ratings, and stalled talks. Greece is currently in the worst financial position since it started the bailout process in 2010 when it asked for €240 billion (£171 billion, $US265 billion) in emergency cash.
“As you know, following the Greek request for a new ESM programme, we had two sessions of the Eurogroup over the weekend with the objective to decide whether to give the official green light, mandate to the institutions to start formally the negotiations on a new ESM programme. we had very intense discussions,” said Jeroen Dijsselbloem, head of the Eurogroup and the Dutch finance minister.
“And hopefully at the end of the week we will have another conference call, formally to give the mandate to the institutions. And they will enter into a process to decide an MOU, which is the basis, and the financing arrangements which are the basis, for a new ESM programme.
“Of course, this is a completely different situation to what we were talking about before; the old talks were broken off and the referendum was called. Then we were talking about a short-term extension of the second programme. Now we are talking about designing a completely new programme for three years.”
However, in 2010, Britain’s Prime Minister David Cameron got the EU to agree that the emergency fund, the EFSM, would no longer be used to fuel massive bailouts for the 28 members of the EU.
A government spokesperson told the Guardian: “Leaders from across the EU agreed in 2010 that the EFSM would not be used again for those in the euro area and that remains the prime minister’s view. We have not received a proposal and one is not on the table.”