Business World

Monday 17 June 2019

EU has 'Plan B' if Greece rejects austerity proposal

Greek protesters hold a huge banner in front of the Parthenon at the Acropolis hill in Athens on June 27. Photo: Getty Images
Greek protesters hold a huge banner in front of the Parthenon at the Acropolis hill in Athens on June 27. Photo: Getty Images

Luke Baker and Julien Toyer

European Union officials are working on a contingency plan for Greece if its parliament rejects an austerity programme and the country cannot receive the next instalment of EU/IMF emergency loans, three eurozone sources said yesterday.

The sources said planning had been going on for several weeks and was designed to ensure Greece gets the liquidity needed to avoid default in the absence of the next €12bn tranche of its emergency loan package, due by mid-July.

As well as preventing default, the aim is to head off any contagion spreading from Greece to Ireland, Portugal and Spain, and the potential knock-on impact on Europe's banking system, with French and German banks large holders of Greek debt.

The plan is distinct from a French proposal for private sector involvement in a second Greek bailout programme and is being discussed despite European Commission President Jose Manuel Barroso and other senior EU officials repeatedly saying that "there is no Plan B for Greece".

"There's been thinking about contingency for some time, for several weeks," one senior eurozone finance official involved in the Greek bailout said. The other sources seconded that line, saying there was "active planning" to step in if the Greek parliament rejects the austerity programme.

"In this sort of situation, you can't afford not to think about what might happen next," the first source said.

The sources would not confirm in detail what the current plan involved, but said several options had already been dismissed, including an EU bridging loan to Athens.

"This option was discussed a few days ago, before the Eurogroup meeting in Luxembourg (on June 19-20), but I understand it's now been ruled out," a second source said.

They would not be drawn on what action banks might take, but British prime minister David Cameron made clear at an EU summit last week that banks needed to strengthen their balance sheets and be ready for any potential fallout from Greece.

Debt markets

Yesterday the debt markets continued to be mesmerised by Greece, and bond yields for the weakest European countries, including Ireland, hit yet another high last night.

The yield, or interest rate, on two-year Irish government bonds passed 13pc yesterday for the first time. Greek two-year bond yields reached 29.38pc, while Greek 10-year yields were 16.81pc.

The cost of insuring Greek and Irish bonds was also at an all time high, though the cost of buying bond insurance for Spain and Italy did fall slightly.

The yield on Irish 10-year bonds rose to an all-time high of 12.11pc at one stage yesterday and stayed close to that level throughout the day. Portuguese bond yields jumped 30 basis points to 11.68pc.

Greece has to roll over €2.4bn of six-month treasury bills on July 15 and €2bn of three-month bills a week later. In August, it has €5.9bn of five-year bonds maturing and must roll over €2.5bn of bills.

Failure to refinance the debts would result in the first default since the eurozone was created in 1999.

The Greek parliament will hold votes on June 29 and 30 on the austerity programme it has agreed with the EU, IMF and European Central Bank, which includes €6bn of spending cuts and revenue increases this year alone. The votes are expected to beclose, with opposition parties rigidly opposed. (Reuters)

Irish Independent

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