The EU has in principle agreed a €7bn emergency loan to Greece, using a mothballed pan-European fund with special arrangements to shield Britain and other non-euro countries against any losses.
Formal approval for the loan will ensure Athens does not default on two big debt repayments on Monday: a €3.5bn bond to the European Central Bank and a €3.6bn late payment to the International Monetary Fund.
If Athens failed to make its ECB bond payment, the eurozone central bank would be forced to withdraw or severely curtail €89bn in emergency loans that are keeping the Greek banking sector afloat.
EU officials meeting on Wednesday and Thursday agreed on the principles of a loan plan using the pan-EU fund — the European Financial Stabilisation Mechanism — with guarantees for non-eurozone countries, according to several people involved in the process. Once a few remaining technical details are resolved, the plan will be approved through a formal written procedure to allow a Monday loan payment to Athens.
The EFSM is an emergency fund with a €60bn maximum capacity secured against the EU budget. It has been used to support Ireland and Portugal and was succeeded in 2012 by the European Stability Mechanism, the euro area’s permanent bailout fund.
The European Commission’s decision to use the EFSM for Greece was controversial for the UK, in particular. David Cameron, British prime minister, thought he had secured a “black-and-white” assurance from EU leaders that it would be retired so British taxpayers would be excluded from eurozone bailouts.
British and non-eurozone countries’ concerns have been addressed through a guarantee that they will not face losses, backed by part of the €3.6bn in profits from Greek bonds owned by the ECB.
After initially raising strong objections to the use of the fund, George Osborne, the UK chancellor, accepted it as long as Britain was indemnified. Officials say one of the last issues to address is a British request for language making clear that this will be the final use of the EFSM.
Even with these guarantees, the use of the EFSM has raised broader problems for Mr Cameron. The legal manoeuvre by the European Commission to use the EFSM worked around a formal decision between EU leaders — the kind of formal decision covering EU reform Mr Cameron will need to defend as legally watertight in Britain’s in-out referendum.
Under the deal to provide bridge finance, Athens would receive a €7bn loan for three months, by which time officials think Greece’s full €86bn bailout package would be agreed. The loan was conditional on the Greek parliament approving a series of austerity and economic reform measures, which were passed in the early hours of Thursday morning.