FXStreet (Guatemala) – Subsequent of a deal in principal being agreed between EZ leaders and Greek Prime Minister Alexis Tsipras, options of bridge financing are being prepared by Euro zone ministers, using advisors, for review and it is expected a decision will be made on one of the options available to them as early as this Wednesday.
We now await the decisions of the Greek parliament in respect of the reform changes that Tsipras has agreed to adhere to and put forward as a viable condition in order to receive a third Greek bailout, this time for an amount of 82-86 billion euros. This bailout is yet to be formally decided at the end of the week, depending on the outcomes of Wednesday’s Greek parliamentary decision.
The concept of the bridge financing is paramount to aiding Greece as soon as possible while the bailout talks could take up to four weeks, while Athen’s lending institutions and banks are in great need of capitalisation and deadlines are fast approaching to pay back 3.5 billion euros to redeem maturing bonds held by the European Central Bank and the required additional funding to meet the already overdue obligations to settle up with the International Monetary Fund.
Reuters reported that, “Overall, in July, Athens needs 7 billion euros according to estimates by the institutions representing its creditors. It will need a further 5 billion euros to cover maturing debt payments by mid-August.”
The chairman of euro zone finance ministers, Jeroen Dijsselbloem, who spoke to a news conference earlier said that this is “Very complex, with technical, legal, financial and political issues to consider,”… “requiring a working group of technical experts to look into that.”
There are a number of options in respect to financing a bridging loan that are being considered, which are complex, and would require a combination of sources, including what are known as SMP profits, (Profits on purchase of Greek bonds made by the ECB and EZ national central banks of the euro zone), to use money still left in the European Financial Stability Mechanism (EFSM; there is 13.2 billion euros left in the EFSM) but this is more unlikely as it requires the consent of all 28 EU countries. In 2011, Britain already refused this as an option for Greece.
Additionally, there is the bilateral loan option to Greece from the other 19 EZ nations which is similar to the initial Greek bailout from 2010. But not many countries have been reported to support this is a viable option. Reuters reported quoting Italy’s Finance Minister Pier Carlo Padoan, “The Italian position is that these options have to be shared by all European members, at least by all eurozone countries,”.
Lastly, the ECB could raise the ceiling on the amount of Greek T-bills it accepts as collateral in its refinancing operations with Greek banks, but this then raises issues on its own, in respect that ECB would be engaging in monetary financing for governments, which is prohibited by EU law.
(Market News Provided by FXstreet)