When they announced their provisional rescue package for Greece on Sunday, European officials pointed not only to its size – at least €30bn- but also its details. For euros and details are what the markets have been demanding these last frustrating weeks.
Yet there still seems to be a fair amount of confusion about the package – or ‘mechanism’, as it is referred to in Brussels-speak – and how it will be put into play, or ‘activated,’ if you like.
One of the chief questions is about the comparative interest rates that would be charged by the eurozone as opposed to the International Monetary Fund, which is also expected to contribute about €15bn.
It has now become clear that the eurozone expected rate of roughly 5 per cent for a three-year fixed loan is substantially higher than that charged by the IMF. A calculation by my colleague, Alan Beattie, suggests that the same funds from the House of Strauss-Kahn would run at about 3 per cent. So, as smart shoppers, surely the Greeks would opt to access the IMF money first?
Alas, this will not be possible. The latest word from the European Commission is that any funds would be ‘co-disbursed.’ What this means is that loans would be delivered to Greece on a blended EU-IMF basis, with a likely ration of 2:1.
So, if Athens were to request €15bn euros in support, some €10bn euros would come from the eurozone and €5bn from the IMF. (Like the IMF, the eurozone has built a 50 basis point ‘service fee’ into its rate, which begs the question of whether they are prepared to offer free toasters or frisbees for new customers?)
Less clear remains the question of what must be done to ‘activate’ the ‘mechanism’? Greece would have to make a request for aid, which would be reviewed by the Commission and European Central Bank. But final approval would ultimately require unanimity from the 16 eurozone governments. Depending on whom you ask, that could be as simple as another hastily-arranged teleconference of finance ministers or a full-fledged meeting of eurozone leaders.
“We now have all the necessary tools and instruments in our tool box to be swiftly used if needed,” Olli Rehn, Commissioner for economic and monetary affairs, said on Sunday. But that may depend on one’s interpretation of the word ‘swiftly.’
Mr Rehn had the best line of the press conference on Sunday when he responded to an obvious question: wouldn’t it have been better to come out with the package in the first place?
After all, repeated attempts to bluff the market with vague-sounding commitments only ended up dragging out the ordeal and damaging credibility. Mr Rehn, ever careful with his words, paused and then said stiffly: “Politics is the art of the possible. That applies for making economic policy in the eurozone as well.”
In his expression there was a hint of the unpleasant, behind-the-scenes wrestling match that eventually gave rise to a kicking-and-screaming rescue.
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