Assuming that there is no last-minute deal between Athens and its creditors, Greece will lose €16.3 billion of financing at midnight Washington time today (30 June), EU officials told the press in Brussels.
As the chance of a last-minute deal to save Greece from default becomes ever more elusive, EU officials provided ample details about the stakes.
Greece, which has received nearly €240 billion in two bailouts from the EU and International Monetary Fund since 2010, is set to miss a €1.6 billion euro debt repayment to the IMF which falls due tonight.
Officials explained that as a consequence, funding will disappear tonight.
“Once it’s gone, it’s gone […] What disappears is 16.3 billion euros. What disappears is the EFSF tranche, €1.8 billion, the SMP profits, and the remaining amount that had remained from the HFSF buffer, that’s just over €16 billion.”
To translate this jargon, the official explained that Greece has three sources of financing. The first is the European Financial Stability Facility (EFSF) itself, which is available for reform programme support and helps cover the fiscal and budget means of the government. That amounts to €1.8 billion. The availability of this facility expires tonight.
Second, there is a fund that remains in the Hellenic Financial Stability Fund (HFSF) buffer, which will be transferred back to the EFSF in Luxembourg. That amounts to €10.9 billion, and its availability also expires tonight.
Third, are the equivalents of profits of loans to the ECB (the ECB’s Securities Markets Programme (SMP). These are profits which the ECB has been learning on loans provided to the Greek government. There is a complicated system of transferring those profits back to Greece. They do not go directly from ECB, but are transferred from national treasuries to Greece.
There are two sets of SMP profits, from 2014, which amount to €1.85 billion. Those are currently sitting with EFSF, ready to be disbursed. They were not disbursed because the sides did not go through the review which would authorise the disbursement. The 2015 profits would have normally been transferred to the EFSF in the first week of July.
The release of each disbursement to Greece must be approved by both the Eurogroup and the IMF’s Executive Board. Prior to this decision, the European Commission, the ECB and the IMF staff conduct joint review missions to Greece in order to monitor compliance with the terms and conditions of the Programme.
The official did not specify the amount of the profits from 2015, but it can easily be calculated that they are also to the amount of €18 billion.
In addition, there are €16 billion remaining under the IMF program program which, under normal conditions, should continue to exist up until Q1 in 2016 when it is due to expire. The IMF had been indicating that considerations were given to the disbursement of €3.5 billion, subject to the completion of the review.
Greek finance minister Yannis Varoufakis had requested that the 2014 SMP profits be frontloaded, so that Greece would pay its due to the IMF tonight. But the officials explained that in case of default, Greece won’t be given its SMP profits, as they would remain in the ECB and transferred to national treasuries in due course. For the 2014 SMP profits, which have already been transferred to the EFSF, an additional decision would be needed to transfer them back to the ECB.
When is default taking place?
Non-payment to the IMF means that this institution cannot lend any money to a country until arrears are cleared. There would be implications for the Hellenic Financial Stability Fund and for the EFSF, because in the loan documentation, it is stipulated that if there were to be a non-payment, this would constitute a default.
The Commission will have to notify HFSF that this non-payment has occurred and then it would have to make a recommendation about what to do. There are three possibilities: either the recommendation is to do nothing, meaning that the institutions only “take note” that the non-payment has taken place; accelerate the payments, which means that Greece would be requested to repay the entire amount it owes in one go; or decide to postpone a decision, and monitor the situation.
For the EFSF, the procedure is very similar, the only difference being that this fund makes the recommendation to the creditors directly.
The official explained that the Commission had looked into what this means for credit rating agencies, and that all had said that in itself, the non-payment to the IMF would not be a reason to declare Greece in default. Similarly, the Commission apparently doesn’t fear declaring Greece in default on behalf of privately-held debt.
It is difficult to say if the statements by EU officials to the press are meant to provoke Greece into making a last-minute move. Margaritis Shinas, the spokesperson of Commission President Jean-Claude Juncker, said that contacts were “still ongoing” between the EU executive and Athens. But he made it clear that there was no intention to buy time by using the diplomatic procedure of “stopping the clock” at midnight.