(May 19, 2010) On May 9, 2010, the Economic and Financial Affairs Council (ECOFIN) of the European Union, in response to the grave financial crisis that is currently unfolding in Greece and in an effort to preserve and restore financial stability in the euro zone, convened an extraordinary meeting in Brussels, at which it endorsed a comprehensive set of emergency measures. A key measure is the establishment of a “European Financial Stabilization Mechanism” (EFSM), composed of loan guarantees and euro bonds, to protect euro zone members from market speculation and rescue them in future crises. EU Members have agreed not to allow a “new Greece” to arise.
In the case of Greece, the EFSM amounts to a total of €110 billion (about US$136 billion), to be given to the Greek government. On May 9, 2010, on behalf of the 16 euro zone members, the European Commission signed a loan agreement with Greece. On May 18, 2010, Greece received the first €20 billion (about US$24.7 billion) loan, comprised of €14.5 billion from euro zone member states and €5.5 billion from the IMF. Meanwhile, Giorgos Papakonstanstinou, the Minister of Finance, secured a provision in Greece's favor to repay the loan within a five-year period, rather than the three years initially agreed upon. (First Tranche of Loan Coming, KATHIMERINI, May 8, 2010, available at http://www.ekathimerini.com/4dcgi/_w_articles_economy_1_08/05/2010_11693
0; Greece Receives First Tranche of EU Bail-Out Loan, BBC NEWS, May 18, 2010, available at http://news.bbc.co.uk/2/hi/business/8688620.stm.)
The EFSM is composed of three parts. One part provides for possible financial assistance to a euro zone Member through a special purpose vehicle (SPV), which is to be established on the basis of an intergovernmental agreement of all euro zone participating members. In accordance with German demands, an SPV will guarantee a loan on a pro-rated basis of up to €440 billion (about US$543 billion). The European Commission has emphasized that the SPV is not a bail out, because it allows the granting of loans, not direct aid grants. (Press Release, ECOFIN, European Stabilization Mechanism to Preserve Financial Stability (May 9/10, 2010), available at http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/
The second part of the EFSM is financial support from the International Monetary Fund. The loan granted to Greece by the Fund is expected to be activated on condition of joint EU/International Monetary Fund (IMF) support, with terms and conditions akin to those typically set by the IMF. The IMF is expected to contribute close to €220 billion (about US$272 billion), half of that promised by the EU Members to support Greece.
ECOFIN, utilizing article 122.2 of the Lisbon Treaty which provides for financial support when EU Member States experience hardships caused by exceptional circumstances beyond a Member State's control, and with the agreement of the euro zone members, established the third part of the mechanism, a loan in the amount of €60 billion (about US$74 billion). http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/173.)
ECOFIN expressed its support for “the ambitious and realistic consolidation and reform of the Greek government.” Specifically, it approved the decision of the Greek government to reduce the deficit by four points in 2010 from 12.75% of gross domestic product (GDP) to 8.7% and to below 3% by the year 2012. ECOFIN made several vital recommendations to the Greek government on implementing reform measures in the area of salaries, wages, pensions, the healthcare system, public administration, and increased employment and productivity. However, Olli Rehn, the European Commissioner for Economic and Monetary Affairs, stated the European Commission's intention to initiate infringement proceedings against Greece for providing inaccurate statistics and data pertaining to the public finances of the country. Meanwhile, the European Statistics body (EUROSTAT) requested that the Greek authorities provide information on the functioning of the country's currency markets and derivatives, which may have induced the discrepancy between the budget deficit and public debt data. (The ECOFIN Council Urges Greece to Apply an 'Ambitious Package' of Structural Reforms, Feb. 16, 2010, EU Spanish Presidency website, available at http://ue2010.net/en/documentosynoticias/noticias/Feb16_ECOFIN.html.)
The Greek Prime Minister reiterated that the Greek government is fully committed to implementing a host of austerity measures despite Greek citizens' indignation over the imposition of such measures, which has culminated in general strikes, protests, and violent incidents. (Greek Strikers Hit Athens Streets Over Austerity Plan, BBC,May 4, 2010, available at http://news.bbc.co.uk/2/hi/europe/8658973.stm.)