The desperately needed bridge finance will give Greece breathing space as it embarks on the tortuous process of agreeing a three-year bailout that could be worth up to €86bn.
Around €50bn is likely to come from the eurozone’s permanent bailout fund, the European Stability Mechanism, which on Friday gave its approval for talks to commence. The formal launch of talks on a three-year bailout comes after the Bundestag and other eurozone parliaments, including those in Austria, France and Finland, voted in favour of opening negotiations with Greece. Germany, Greece’s largest creditor, has so far resisted large-scale debt relief and is implacably opposed to any step that could lead to reducing Greece’s debts. Schäuble argues that any reduction in Greece’s debts – known as a “haircut” – would be illegal under EU law. The German finance ministry has said that giving Greece more time to pay its debts is a possibility but maintains that Greece’s current level of borrowing would be bearable if the country reformed its economy to spur economic growth.
The creditors have effectively set themselves a deadline of 20 August to resolve this argument. By that date Greece must repay €3.2bn to the ECB, but all emergency bridging finance will be exhausted by the end of July. The €7bn bridging loan paves the way for an elaborate exercise in international shuffling of cash from one creditor to another. Greece will use part of the €7bn from the EU to repay €4.2bn to the European Central Bank on Monday. Failure to make this payment could have forced Greece out of the eurozone. It will use another tranche of the loan to repay €2bn to the IMF to clear arrears, freeing the fund to lend Greece more money.
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