The European Commission has done a very weird thing.
It has explicitly announced that Greece has an implicit guarantee of all its debt.
Despite what you may have read, Greece hasn’t technically been bailed out yet. Instead, EU finance ministers, along with the IMF have announced most of the terms of a bail out, should a bail out be needed.
Why would Greece need a bail out? That’s not clear, but presumably it would require some kind of failed auction or default.
Why would Greece have a failed auction? That’s not clear either — after all, why would you not lend to Greece, knowing that the terms of its bailout have already been announced.
Basically the EU and the IMF hope they can jawbone a bailout without actually having to pay anything out.
It might work.
It’s not wildly different than what the Treasury did the dark days of our financial crisis, except that in addition to implicitly promising that there would never be a nationalization of any major bank — that, not default was the big fear — the US central bank printed mad amounts of money so that it could brute force return the banks to financial health.
The ECB has no such brute force mechanism at its disposal. Greece’s only path to health will involve an economic rebound, slashing spending and raising taxes (painful).
As for the details themselves, the country will get about $40 billion, two-thirds of which will come from the ECB, and one-third from the IMF.
If it’s needed.
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