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Brussels proposes using EU rescue fund to help Greece
Peter Spiegel and Alex Barker in Brussels and Elizabeth Rigby in London
Members of the anti-European Greek Communist party, the KKE, take part a march against austerity in front of the Greek Parliament in Athens on July 10, 2015. Greek Finance Minister Euclid Tsakalotos said on June 10 he believed "many" of his country's demands for debt relief will be accepted by eurozone partners, which are weighing a bailout proposal. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)©AFP
The European Commission has submitted a formal proposal to use an EU-wide rescue fund to rush aid to Greece to ensure Athens does not default on Monday, a proposal that will force Britain’s prime minister, David Cameron, to rally allies if he wants to block it.
According to an EU official, the commission submitted the plan late on Tuesday after determining it was the best option to avoid Greece defaulting on a €3.5bn bond Athens owes the European Central Bank. If Athens were to default on that bond, the ECB would be forced to pull emergency loans keeping the Greek banking sector afloat.
“It’s the most European, politically and economically sound, readily available option,” said the EU official. “Without it, there is a risk the euro summit [agreement] won’t work.”
The commission’s decision comes despite angry objections to the plan by George Osborne, the UK chancellor, who at a meeting of EU finance ministers in Brussels on Tuesday called the plan “a non-starter”.
Downing Street is furious that the commission is risking inflaming British public opinion ahead of the UK’s referendum on EU membership, which will be held by 2017.
Under the EU’s Byzantine voting rules, Mr Osborne must now rally a weighted majority of fellow EU members to block the proposal. Although he has the support of some other non-euro countries — both Denmark and Sweden registered their objections at Tuesday’s meeting — it is unlikely that at present Downing Street has sufficient allies to block the plan.
Even the formal attempt by Brussels to use this fund is a big political setback. Mr Cameron has trumpeted securing a “black and white” promise in 2011 that the fund would be mothballed so British taxpayers would not be part of eurozone bailouts.
The EU-wide fund, the European Financial Stability Mechanism, was set up at the outset of the eurozone crisis with €60bn in lending capacity.
When the eurozone moved to set up a new, permanent rescue fund for the currency union’s 19 members, Mr Cameron won agreement at an EU summit that the EFSM would never be used again for eurozone rescues.
But EU lawyers have argued that the 2012 deal was a political agreement, not a legal one, allowing them to re-tap the fund.
This commission approach potentially undercuts one of the legal avenues British officials are exploring to enshrine reforms to Britain’s EU membership terms. Given formal treaty changes are unlikely before the referendum, Britain may need to rely on a decision by EU leaders, exactly the type of political promise the commission are disregarding in the case of the EFSM.
A government figure said on Wednesday that the UK remained firmly opposed and that the chancellor was “immovable” on principle that British taxpayers’ money would not be used to bail out Greece. “We are not trying to be obstructive but it us a eurozone issue.”
One official involved in negotiating the EFSM decision in 2011 said the commission’s proposal demonstrated that joint declarations by EU leaders “are worthless” until the laws and treaties are changed.
The EFSM distributed €48.5bn as part of Ireland’s and Portugal’s rescue, meaning it has about €11.5bn remaining. Greece needs €7bn by Monday to make the ECB bond payment plus interest, and reimburse the International Monetary Fund for €2bn in arrears.
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