Credit line based on HFSF cash

With the obstacle of the bank stress tests now overcome, the government and the European Commission are putting the finishing touches to the plan for Greece’s future after the bailout program comes to an end, knowing that the 11.3 billion euros in the Hellenic Financial Stability Fund (HFSF) reserves can now be used as a component for the country’s safe exit from the adjustment process.

Brussels is aware that negotiations will focus on what will be most credible for the markets, as it is they that will serve as Greece’s strict inspector as of January. Therefore, one of the key measures that Athens and the Commission are looking at is an enhanced precautionary credit line for Greece in case the country runs into problems in tapping the money markets.

That line has already been designed by the European Support Mechanism (ESM) – known as the Enhanced Conditions Credit Line (ECCL) – for the countries needing it. In Greece’s case, European officials note that there could be some flexibility in its application.

The first step in Brussels’s plan toward that credit line will be the approval of the amount Greece will have access to, and that will more or less be the 11.3 billion euros in the HFSF. Besides serving as the credit line, this amount will also have another use – reducing the state debt, which will then go down by 6 percent of gross domestic product. That will have multiple benefits, as it will render the debt sustainable by 2020, bringing it close to the European Union average.

The credit line currently on the table will last one year, with Greece having access to just under 3 billion euros per quarter. To gain that access, Athens will need to commit itself by signing a text, which its creditors will also sign, saying that it will not revert to the vicious cycle of deficits and proceed to 10 major reforms “which the government itself will choose.” If Greece does require this money, besides its commitments, it will also have to undergo a second inspection on its fiscal figures and the progress of its reforms.

Still, Brussels knows that Greece’s 2015 funding needs will not exceed 10-15 billion euros, so getting it from the market is far from unlikely.

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