By Vassilis Kostoulas
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A “security blanket” in the form of a precautionary financial assistance mechanism by the European Stability Mechanism (ESM) is rapidly emerging as a realistic “interim solution” for an embattled Greek government facing a risky return to capital markets after August 2018 - or the specter of a fourth memorandum should it fail to secure competitive lending.
The precautionary financial assistance, one of six available but never-used financing tools in the ESM’s arsenal, offers Euro zone member-states “ …access (to) ESM assistance before they face major difficulties raising funds in the capital markets.”
The scenario for a transitional return by the Greek state to capital markets was first considered by the then Samaras government in 2014. The idea is to allow an EZ member-state more autonomy in planning its economic policies while at the same time facilitating a return to the markets with a “safety net” in place.
Indicatively, Greek 10-year bonds currently hover at the 5-percent mark.
As with all of the Euro zone’s support mechanisms, however, the precautionary financial assistance is accompanied by conditions included in a MoU that would be signed between the EU Commission – on the behalf of the ESM - and the recipient member-state.
What follows, as prescribed by the ESM, is “enhanced surveillance” of the member-state by the Commission for the period in which the credit line is available, and in consultation with other European bodies and “where appropriate", the IMF.
By all accounts, and independent of the almost daily chatter heard from official Athens over the date and scope of an eventual return to the markets, the assistance mechanism appears as the primary scenario for Greece’s smooth transition in 2018 away from institutional creditors’ loans.
Greek Prime Minister Alexis Tsipras more-or-less ruled out another adjustment program for the country in statements during an Economist conference in Athens late last month, saying that after a June 15 Eurogroup decision his government is confident that the era of bailouts is over, and that it will not seek a “a support credit line with new commitments, or, in other words, a veiled memorandum”.
