Britain’s Treasury department has approved the use of EU-wide funds to alleviate Greece’s debt crisis, despite Chancellor George Osborne insisting the eurozone should foot its own bill, it has emerged.
Anonymous sources told Sky News on Wednesday the Treasury will support the use of British cash as part of a bridging loan to Greece, on the condition there is an indemnity against the UK losing any money.
The revelation comes as the European Commission (EC) said it will use funds from the European Financial Stability Mechanism (EFSM) to lend Greece €7bn (£5bn) in short-term financing. The emergency funding program draws on money from all EU member states.
The UK’s exposure under the EFSM could amount to £1bn, economists claim.
Their estimates follow Chancellor George Osborne’s meeting with EU officials on Monday in which he said British money would not be used as part of any emergency lending for Greece.
So much for Osborne's assertion that the UK chipping in to the #Greece bailout was 'a non starter'!!! #ThisIsACoup
— Gary Walker (@UpAroundTheBend) July 15, 2015
Osborne told eurozone leaders the group must honor a previous agreement that the EFSM would not be used for further bailouts.
In 2010, Prime Minister David Cameron secured a “clear and unanimous agreement” that the EFSM would not be used for future eurozone bailouts after it was used to assist Ireland and Portugal.
At the time, Cameron pushed for members of the single currency to share responsibility for their own debt crises.
A Downing Street spokesman told the Guardian on Monday that the 2010 agreement still stands.
Green MEP @MollyMEP says no to UK bailout for Greece but yes to debt write-off http://t.co/A7Vw7wNQzP#Greecebailout#DebtRelief
— Green Party (@TheGreenParty) July 15, 2015
Despite concerns over the use of British funds in an emergency loan, experts speaking to the EU Financial Affairs Committee at the House of Lords on Wednesday agreed the risk posed by Greece to the UK is not significant.
“The direct implications to the UK are very small,” economist Roger Bootle told the panel.
“In this regard we are suffering a disservice from our media, who continually report this as an enormous crisis which threatens a financial disaster,” he said.
“The implications to the UK are small because our exports share going to Greece is very, very small, and banks have substantially reduced their exposure to Greece … so I don’t think there would be any major impact via the rest of the Eurozone.”
Unsustainable debt
Greece’s parliament is preparing to vote on the controversial bailout program on Wednesday, a day after Prime Minister Alexis Tsipras told Greek national television he signed “a text that I do not believe in, but that I am obliged to implement.”
The vote comes as a leaked report first seen by Reuters, reveals the IMF warned the EU that Greece may need a full moratorium on debt payments for 30 years and perhaps even subsidies in order to return to economic growth.
“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” the confidential document states.
Greece’s Debt to GDP ratio is predicted to rise to 200 percent over the next two years - a level economists across the globe warn is unsustainable.
The IMF will not take part in any EU bailout for Greece unless Germany and other European creditors agree to large-scale debt relief, according to the leaked report seen by Reuters.
Although EU officials were aware of the report during negotiations with Greece, they still insisted on harsh austerity measures devoid of debt forgiveness.
The IMF report appears to support what debt relief campaigners have been saying for some time.
Is the PM is first EU Council leader to explicitly call for debt relief for Greece? "IMF must be right" he told Parliament -- over to Berlin
— Faisal Islam (@faisalislam) July 15, 2015
Economist Tim Jones of the Jubilee Debt Campaign described the Greek bailout deal reached on Monday as reminiscent of emergency lending offered to developing nations during the 1980s and 1990s.
“This is not an agreement but an outrageous imposition on the Greek people. If implemented, it will continue the five-year long crisis in the Greek economy since the first disastrous bailout of European banks in 2010 for another decade or more,” he said.
READ MORE: Greek pharmacists & civil servants launch 24hr strike, protesting austerity measures
“At the heart of it is a lie from eurozone leaders that ‘nominal haircuts on the debt cannot be undertaken’. They can, they should and they must.”
The director of the campaign group Global Justice Now, Nick Dearden, condemned the EU agreement as resembling imperialism.
“The deal that Greece has agreed to has nothing to do with a democratic union of countries, but rather resembles the imperial politics of the 19th century,” he said.
“Is it so unthinkable to put the rights and livelihoods of ordinary people ahead of threatening the interests of the banks? The European governments and institutions seem to think so.”
READ MORE: Greek deputy finance minister resigns over debt deal
“The lives and rights of millions of Greeks, and now the very existence of the EU as a democratic union, come a poor second to the economic fundamentalism of Merkel and the Troika.”
A group of economists, financial lawyers and political scientists speaking to the House of Lords EU Financial Affairs Committee on Wednesday were divided over how important debt relief is to Greece’s economic recovery.
Economics Professor Richard Portes of London Business School pointed out that Greece has already experienced “substantial” debt relief by means of extending maturities and lowering interest rates.
While he accepted the “debt overhang” is still great, he said that as long as debt repayments are not excessive the issue of debt relief or debt reduction is not a priority.
But Professor Rosa Maria Lastra of Queen Mary University told peers Greece’s bailout packages were not providing debt relief because the money was being used to repay private creditors.