5 Financial assistance for Greece
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; recommended for debate on the floor of the House
|
| Document details | (a) Council Implementing Decision on granting short-term Union financial assistance to Greece
(b) Joint declaration by the Commission and the Council on the use of the EFSM
(c) Council Implementing Decision approving the adjustment programme of Greece
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| Legal base | (a) Article 3(2) Council Regulation (EU) No. 407/2010; —; QMV
(b) —
(c) Article 7(2) Regulation (EU) No. 472/2013; —; QMV of eurozone Member States, less Greece
|
| Department | HM Treasury
|
| Document Numbers | (a) (36987), 10991/15, —
(b) (36993), 10994/15, —
(c) (36994), 10992/15, —
|
Summary and Committee's conclusions
5.1 On 13 July Eurogroup Ministers agreed a new financial support
programme for Greece, to be financed in part from the eurozone's
European Stability Mechanism. However, to avoid further defaulting
on some of its commitments, Greece needs bridging finance until
the new programme can be put into place and has applied for assistance
from the EU wide European Financial Stability Mechanism.
5.2 We have considered three documents responding
to this situation: a Council Implementing Decision granting Greece
bridge financing of €7.16 billion (£5.1 billion) from
the European Financial Stability Mechanism, which includes protection
for the financial interests of non-eurozone Member States; a statement
from the Commission and the Council limiting future use of the
European Financial Stability Mechanism and a Council Implementing
Decision approving the economic and financial adjustment programme
submitted by the Greek government.
5.3 The Government explains to us the background
to these documents, how in its view the UK's interests have been
protected, and why it thought it necessary to override scrutiny.
5.4 These documents are an important development
in attempts to resolve the Greek economic and financial crisis
and the consequential impact on the eurozone. So we recommend
that the documents be debated on the floor of the House. We suggest
that, in addition to the situation the documents seek to address,
Members will also want to consider the wider implications of this
use of the European Financial Stability Mechanism for political
statements by the European Council.
Full
details of the documents:
(a) Council Implementing
Decision on granting short-term Union financial assistance to
Greece: (36987), 10991/15, —; (b) Joint declaration by the
Commission and the Council on the use of the EFSM: (36993), 10994/15;
(c) Council Implementing Decision approving the adjustment programme
of Greece: (36994), 10992/15, —.
Background
5.5 In December 2010 the European Council agreed
to a Treaty amendment, under Article 48(6) TEU,
to allow the eurozone Member States to establish a European Stability
Mechanism (ESM). As this mechanism was designed to safeguard the
financial stability of the eurozone as a whole, the European Council
agreed that Article 122(2) TFEU, under which the EU wide European
Financial Stabilisation Mechanism (EFSM) had been established,
would no longer be needed for such purposes.[ 51]
The Treaty amendment was adopted in March 2011. However, the EFSM
Regulation was not formally amended to reflect this limitation.
5.6 On 13 July Eurogroup Ministers agreed a new,
heavily conditioned, financial support programme for Greece, to
be financed in part from the eurozone's ESM. However, to avoid
further defaulting on some of its commitments, Greece needs bridging
finance until the new programme can be put into place.
The documents
5.7 On 8 July Greece requested stability support
to be provided from the ESM through a loan for a duration of three
years. A Eurogroup Summit on 13 July gave its approval, in principle,
for negotiations to be pursued on a programme of stability support
through the ESM. On 15 July the Greek government submitted a request
to the EU for the EFSM to provide emergency short term financial
assistance. The loans provided by the EFSM would allow it to pursue
the negotiations on the ESM during July whilst also safeguarding
its financial stability. The additional funds would be sufficient
for Greece to make the scheduled bond repayments to the ECB and
to clear its arrears to the IMF.
5.8 Greece also submitted a draft economic and financial
adjustment programme to the Commission and Council in which it
sets out the reforms it will adopt with a view to making its public
finances more sustainable.
5.9 The Commission, in response to Greece's request,
proposed two Council Implementing Decisions to approve the economic
and financial adjustment programme and to grant short term assistance
to Greece through the EFSM. Accompanying these proposals are a
joint declaration of the Commission and Council on the future
use of the EFSM and a declaration of the Eurogroup on transparency.
5.10 The Council Implementing Decision on granting
short-term EU financial assistance to Greece, document (a), proposes,
following a request from the Greek government that bridge financing
of €7.16 billion (£5.1 billion) in loans be provided
through the EFSM. The loans would be disbursed in two disbursements
and will have a maximum maturity of three months.
5.11 This financial assistance aims to allow Greece
to meet its financial obligations during July 2015, after which
it will commence receiving financial assistance from the ESM.
The first disbursement of ESM financial assistance to Greece,
once agreed, will be used to repay the loans provided to Greece
through the EFSM. A loan facility agreement will set out the detailed
financial terms of the €7.16 billion financial assistance
that Greece will receive. Disbursements under the EFSM are conditional
on Greece adopting the measures stated in its adjustment programme
and having agreement in principle from ESM Members for new financial
assistance under the ESM.
5.12 Member States that are not members of the eurozone,
through a legally binding arrangement, will be provided with liquid
collateral amounting to their full exposure in case of a default.
This means that non-eurozone Member States will have no contingent
liability. A declaration of the Eurogroup on transparency commits
to ensure transparency in their cooperation with non-eurozone
Member States with regards, in particular, to discussions on the
EU Budget and the EFSM.
5.13 The joint declaration by the Commission and
the Council on the use of the EFSM, document (b), commits the
Commission to revising the EFSM regulation in order to make the
provision of collateral for non-eurozone Member States legally
binding for any potential future use of the EFSM for a eurozone
Member State.
5.14 The second Council Implementing Decision, document
(c) approves the economic and financial adjustment programme submitted
by the Greek government.
The Government's view
5.15 In his Explanatory Memorandum of 20 July 2015
the Financial Secretary to the Treasury (Mr David Gauke) says:
"The Government has been clear that whilst
Greece remains a member of the euro area, euro area Member States
should be liable for all financial assistance for Greece and that
non-euro area Member States, including the UK, should not be exposed
to any risk.
"The Government successfully secured safeguards
in the draft implementing decision ensuring that non-euro area
Member States, including the UK, will carry no liability for assistance
to Greece in case of a default.
"The Government welcomes the draft implementing
decision setting out the legally binding arrangements through
which collateral will be provided to cover the UK's full liability
in the event Greece is unable to make the repayment. This will
ensure that no financial assistance can be disbursed until the
collateral arrangements and accompanying legal work are firmly
in place.
"The Government achieved the adoption of
a joint declaration of the Commission and Council on the future
use of the EFSM. This sets out safeguards with regards to the
liability of non-euro area Member States, including the UK, under
potential future financial assistance provided to euro area Member
States. It is stated that the future use of the EFSM or any other
instrument of a similar nature for the purpose of the financial
stability of a euro area Member State must have a legally binding
arrangement ensuring all non-euro area Member States bear no liability
under the financial assistance through receiving equivalent collateral.
"The Government welcomes the Commission's
commitment to bring forward a proposal to amend the EFSM regulation
to make the provision of collateral for non-euro area Member States
legally binding on any potential use of the EFSM for a euro area
Member State. The Commission commits to bring forward no new proposals
for the use of the EFSM until the amendment to the regulation
is complete.
"The declaration of the eurogroup on transparency
is in conformity with the Government's clear position that matters
such as the EU budget and EFSM are to be discussed and decided
upon in the Council, in which all Member States are represented.
"The Government has sought to be constructive
and wants to see a stable solution in Greece. Through what have
been tough talks, the Government has secured a deal which places
an impregnable ring-fence around British taxpayers' money with
regards to emergency financing through the EFSM. The commitment
to enshrine this principle in the EFSM regulation represents a
strengthening of the protection of non-euro area countries, including
the UK, in ensuring they hold no financial liability for financial
assistance for euro area countries. It is for this reason that
the Government supported the deal."
5.16 On the financial implications the Minister says:
"The European Financial Stabilisation Mechanism
(EFSM) provides loans to EU Member States through raising funds
on the capital markets The EU Budget acts a guarantee for the
loans provided under the EFSM, which is only realised in the event
of default. The UK, as a contributor to the EU Budget, holds a
contingent liability for its share of the total liability arising
from the EFSM in line with the UK's pre-abatement share of the
EU budget.
"The draft implementing decision on granting
the financial assistance through the EFSM also provides safeguards
for non-euro area Member States by ensuring that they have legally
binding access to collateral to cover the full amount of their
exposure in case of a default by Greece.
"This collateral for non-euro area Member
States will be provided from an account at the European Central
Bank (ECB) provisioned with €1.8 billion (£1.3 billion)
ECB profits and from €160 million (£114 million) from
the first EFSM disbursement.
"EFSM financial assistance for Greece cannot
be disbursed until the collateral arrangements and accompanying
legal work are firmly in place.
"The first disbursement under the ESM, once
agreed, will be used by Greece to repay the loans granted to the
country under the EFSM."
5.17 Earlier, in his letter of 17 July 2015 the Minister
elaborated further about these developments, particularly in relation
to the use of the EFSM and, as he asserted, "strengthened
protections for the UK in the latest Greek bailout and any future
bailouts of Eurozone countries".
5.18 Noting that the financial situation in Greece
was critical, the Minister said that:
· the
eurozone Member States had reached agreement on the basis of a
new financial assistance programme through the ESM, in which the
UK has no liability;
· this
was being negotiated as he wrote, with relevant parliamentary
procedures taking place in Greece and other eurozone countries
that week; and
· further,
recognising its immediate financing needs to service its debt
obligations and repay its arrears to the IMF, on 15 July the Greek
Government requested a short-term EFSM programme to provide bridging
finance until the ESM programme was in place.
5.19 The Minister continued that:
· the
Government had sought to be constructive and wanted to see a stable
solution to the Greek crisis;
· but
it would not have been acceptable for it to have allowed UK taxpayers'
money to be on the line in what is an issue for the eurozone itself
to resolve;
· following
tough talks, the agreement reached on a Greek EFSM programme put
in place an impregnable ring-fence around UK taxpayers' money,
which would not be at risk in any way;
· the
Government had secured the same protections for all other non-eurozone
Member States; and
· the
agreements had established an important principle in EU law.
5.20 The Minister explained that first part of the
protections was a legal agreement ensuring no financial liability
for non-eurozone Member States as part of the proposed EFSM programme
for Greece. He noted that the recital of the Council Implementing
Decision, document (a), states:
"The euro area Member States have communicated
their commitment to reimburse jointly and promptly through a dedicated
arrangement each non euro area Member State for the amount that
that non euro area Member State has paid in own resources corresponding
to the use of the general budget of the Union in cases of losses
stemming from a Union financial assistance to a euro area Member
State."
5.21 The Minister then said that the proposed programme:
· is
a €7.16 billion EFSM loan, with a three-month duration;
· the
full amount of the EFSM loan should be repaid by the first tranche
of the full eurozone programme, once agreed;
· as part
of this, cash collateral, predominantly comprised of profits the
eurozone received from the European Central Bank (ECB)'s Security
Market Programme (that is, profits made by the ECB on its holdings
of Greek bonds), equivalent to the full contingent liability of
non-eurozone Member States (roughly 28% of the total), will be
placed into an account managed by the ECB;
· it was
written into the legally-binding articles of the Council Implementing
Decision on the programme that the EFSM will not be disbursed
until the collateral arrangements, and accompanying legal work,
are firmly in place;
· this
meant that the Government will have a legal right to access the
UK's share of this collateral in the event that Greece fails to
repay the EFSM loan, thus ensuring no financial liability.
5.22 The Minister explained also that:
· the
second part of the protections was a joint Commission and Council
declaration, document (b), to amend the underlying EFSM Regulation
to enshrine the principle that non-eurozone countries should bear
no financial liability for financial assistance to eurozone countries;
· this
made the provision of collateral for non-eurozone Member States,
or a similar arrangement, legally binding on any future use of
the EFSM; and
· this
amendment must take place before the EFSM can be used again.
5.23 The Minister added that:
· more
generally, the joint declaration states: "The Commission
and the Council agree that any future use of the EFSM Regulation
or any other instrument of a similar nature, for the purpose of
safeguarding the financial stability of a Member State whose currency
is the euro, will be made conditional upon arrangements (via collateral,
guarantees or equivalent measures) being in place which ensure
that no financial (direct or indirect) liability will be incurred
by the Member States which do not participate in the single currency";
and
· finally,
in a statement alongside these agreements, the Eurogroup has committed
"to ensure proper transparency and to strengthen cooperation
with the non-euro area EU Member States" and "confirmed
that all matters of general application, including the EU budget
and the EFSM, are to be discussed and decided upon in the Council
involving all Member States".
5.24 The Minister concluded that:
· reflecting
the urgency of the situation in Greece and the importance of securing
strengthened protections, an expedited timetable had been necessary;
· Greece
requested EFSM assistance on 15 July, and the Commission bought
forward a formal proposal shortly thereafter;
· this
was subject to immediate intensive negotiations;
· official
level agreement was reached in principle on the afternoon of 16
July, following which Council written procedure was initiated
with a deadline for agreement on 17 July — and Council agreement
was reached; and
· he regretted
that, in turn, that this necessitated a scrutiny override, but
that he was convinced the strengthened protections for financial
liability to the UK were in the national interest.
Previous Committee Reports
None.
51 See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/118578.pdf.
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