While Greek PM Alexis Tsipras is busy figuring out how best to go about pushing the "deal" he reached on Monday morning in Brussels through parliament, EU finance ministers are scrambling to put together billions in bridge financing that will hold Athens over until the activation of the ESM program which is likely at least four months away. Greece needs between €7 and €12 billion in the interim according to most estimates, and faces a critical payment to the ECB on July 20 - with Greek banks dependent solely on ECB liquidity, missing this payment isn’t an option.
Of course any "payments" made by Greece to external creditors (i.e. to anyone other than former or current Greek public sector employees) will only be possible by way of circular funding schemes much like the SDR reserve raid that allowed Greece to pay the IMF with its own money in May. Here’s Open Europewith a rundown of the options under consideration for the bridge loan:
- European Financial Stabilisation Mechanism: Using the EFSM (an EU wide bailout fund) has been suggested since it can be activated by Qualified Majority Voting.
- Profits from Eurosystem held bonds: An option for financing which was included in the last bailout was the transferral to Greece of profits from Greek bonds bought under the Securities Markets Programme (SMP) by the ECB and National Central Banks. This can be done fairly simply via a decision of member states and the central banks. However, they have previously wanted conditionality hence why it was tied into the bailout. Furthermore, this is only expected to yield around €3.5bn so falls well short of what is needed for the bridge.
- Bilateral loans: Some Eurozone member states could give Greece short term bilateral loans to tide it over. So far though France is the only country that seems serious about this. Given the size of the loans and the fact they would need to be provided immediately in cash it seems likely only the largest states would be able to provide them. Furthermore, such loans would need parliamentary approval in any state that provided them (tough in Germany, Netherlands, Finland and the Baltics), while they would also show up in debt levels for these countries.
- Short term debt: Another alternative would be to allow Greece to issue more short term debt combined with ECB liquidity which would allow Greek banks to take more of it on. However, this would run counter to the views of the ECB supervisory arm.
- IMF and ECB delay repayment: Over the weekend there were rumours of the ECB agreeing to delay the repayment of bonds it holds due over the summer. However, this would mark a significant change of stance for the ECB and foment German concerns over monetary financing. Since Greece is already in arrears to the IMF it could simply delay this further, though this would not be seen as acting in good faith.
As you can see, all of these options 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). And while that’s unavoidable in terms of Greece’s near-term external debts, German FinMin, and architect of the great Greek humiliation Wolfgang Schaeuble has other ideas in mind for how Greece might go about paying pensioners and government employees. Handelsblatt (Google translated)has more:
In discussing the euro zone finance ministers on a possible bridge financing Schäuble have suggested that the Athens government could spend IOUs to serve part of their domestic payment obligations, told the Handelsblatt (Tuesday edition) from participating districts.In the euro group on Monday this so-called "IOU" papers were re-issue.Finance ministers consider a range of options for a bridge loan. Because to Greece money from a possible ESM bailout program will receive, it could take up to four weeks. The use of IOUs is controversial. Some experts warn that it could be a first step to a parallel currency.The promissory notes were also located only internal payment obligations, such as bills or salaries, operate. For the external debt they are not fit. But already on July 20, has to operate, which are held by the European Central Bank (ECB) Athens expiring bonds of 3.5 billion euros.
And here’s Open Europe on the IOU option:
IOUs: An idea reported by Handelsblatt overnight and said to be proposed by German Finance Minister Wolfgang Schäuble is that Greece issue IOUs to meet some of its payments. This is a bit of a non-issue though as such an approach could only be used to meet internal payments, while most of the bridge financing is needed to meet external debts to the ECB and IMF.
So it appears as though Schaeuble and Yanis Varoufakis do agree on at least one thing: that Greece may be forced to resort to the "California" IOU option to meet its domestic obligations.
Of course Greek public sector employees have already suffered untold humiliation over the course of their government’s negotiations with creditors.
Most recently, pensioners were forced to line up at banks - which reopened briefly earlier this month to disburse pension payments - only to receive a third (around €120) of their promised payouts. The following rather haunting image is indicative of the scene the played out at banks across the country when pensioners besieged bank officials in a desperate attempt to get what little of their money was available.
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Now, it appears Schaeuble is angling to complete the Greek pensioner degradation by ensuring that this month, retirees will receive nothing but an IOU signed by Syriza, a not-so-subtle reminder to Greek public sector workers that when you elect a belligerent government unwilling to cede to the demands of the EU paymaster, you do so at your own economic peril.
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