Documents considered by the Committee on 21 July 2015 - European Scrutiny Contents


5 Financial assistance for Greece

Committee's assessment Legally and politically important
Committee's decisionNot 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

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

DepartmentHM 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.  Back


 
previous page contents next page


© Parliamentary copyright 2015
Prepared 30 July 2015