Greece’s Loan-Agreement Bluff

16/2/2015

By Gabriele Steinhauser and Viktoria Dendrinou

Why the Greek distinction between extending the country's bailout and extending its "loan agreement" is a giant red herring.

On Tuesday night, when Greek officials began briefing that they would seek an extension to the country’s rescue deal from the rest or the eurozone, they insisted journalists understand a clear distinction: “The request is going to ask [for] the extension of the loan agreement and not the bailout,” one of them said.

The difference, the officials explained, was that extending the loan agreement would give Greece access to its last installment from the eurozone’s bailout fund, the European Financial Stability Facility.  But it wouldn’t mean, the officials stressed, that the government actually had to accept all the “toxic” austerity measures listed in the Memorandum of Understanding (the legal name of the document that has ruled Greek policymaking for almost five years).

This insistence on making that distinction gave some journalists pause. Was the government of Prime Minister Alexis Tsipras asking for money without any conditions, even though it had been told over and over again that that was a no-go? Or was this yet another euphemism, the proverbial old wine in a new bottle, similar to referring to the “troika” of the European Commission, the European Central Bank and the International Monetary Fund simply as “the institutions”?

Turns out, it’s actually old wine in the old bottle.

Why? Because, when you extend the bailout, the only thing that you need to extend is the “loan agreement,” a document that is officially known as the Master Financial Assistance Facility Agreement (henceforth MFAFA). The MFAFA sets out the terms of the loans that Greece has been getting from the EFSF, including interest rates and maturities. It also has a clearly defined “availability period,” during which those loans can be disbursed.

When the MFAFA between Greece and the EFSF was signed in 2012, that availability period was set to end on Dec. 31, 2014 (p.5). It was later extended to Feb. 28, 2015, following a request from the former Greek government in December.

“It doesn’t make sense from a legal point of view to extend the MoU,” says one European official. Or, as another official put it: “The MoU doesn’t have an expiration date.”

Does that mean Greece will get the loans without signing on to the conditionality? Not exactly, since the MoU is an integral part of the MFAFA. See for instance paragraph 7 (page 3) of the Greek MFAFA (emphasis added to ignore some of the legalese):

The availability and the provision of Financial Assistance under this Agreement, including pursuant to the Facilities (as defined below) made available under the Facility Specific Terms (as defined below), shall, unless otherwise specified, be conditional upon (i) the Beneficiary Member State’s compliance with the measures set out in the MoU and (ii) the Guarantors deciding favourably, on the basis of the findings of the regular assessments carried out by the Commission in liaison with the ECB in accordance with the Council Decision of the European Union on the basis of Articles 126(9) and 136 of TFEU on 12 July 2011 (which recast the former Council Decision 2010/320/EU of 10 May 2010 as amended), that the economic policy of the Beneficiary Member State accords with the adjustment programme and with the conditions laid down by the Council in the Decision and any other conditions laid down by the Council or in the MoU.

Three European officials confirmed Wednesday that the Greek government was indeed working on a request to extend the MFAFA.”It’s the same thing that happened in December,” said one of them.

A senior Greek government official in Athens declined to say whether the government is requesting to extend the MFAFA. “We should wait and see what the actual draft text will include,” the official said. “It won’t be the same deal as in December

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