Economy

EU fund says it reserves right to call in €130bn Greek debt early

The European Financial Stability Facility issues statement after Greek default with IMF

European Stability Mechanism (ESM) managing director Klaus Regling (left) and Greek finance minister Yanis Varoufakis (right) at the start of the Eurogroup meeting at the European Council in Brussels last month. Photograph: Julien Warnand/EPA

Fri Jul 3 2015 - 14:01

The euro zone's rescue fund, Greece's largest creditor, said on Friday it reserved the right to call in €130.9 billion in debt ahead of schedule after Athens defaulted this week on an International Monetary Fund loan.

The decision was announced two days before Greeks vote in a referendum on whether to accept bailout terms rejected by their leftist government. European officials have said a No vote could lead to the country’s exit from the euro zone.

The board of the European Financial Stability Facility decided to reserve its rights to act at a later stage on the outstanding loans to Greece, an EFSF statement said.

Chief executive Klaus Regling made the recommendation rather than two other options - waiving the debt or demanding immediate repayment, which would have bankrupted Greece and forced euro zone governments to take large losses.

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“This event of default is cause for deep concern,” Mr Regling said in an EFSF statement. “It breaks the commitment made by Greece to honour its financial obligations to all its creditors and it opens the door to severe consequences for the Greek economy and the Greek people.”

On June 30th, Greece failed to pay €1.6 billion due to the IMF, a non-payment which could "constitute an event of default for certain EFSF loans," the EFSF said in a statement on July 1st. Future actions will be decided with euro zone states, the European Commission and the IMF.

The Greek non-payment had no influence on the EFSF’s capacity to repay its bondholders, the statement said, underlining that the fund relies on a “robust guarantee structure” to borrow on capital markets. The board of directors of the EFSF is composed of deputy finance ministers and senior officials of euro zone states. Incorporated in June 2010, the EFSF issues bonds to provide loans to countries in financial difficulties.

From July 2013 it was subsumed into the euro zone's permanent bailout fund, the European Stability Mechanism (ESM), also based in Luxembourg and headed by Mr Regling.

Reuters

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