Greece is about to get the nod from the European Union for the early repayment of the three installments of bilateral loans, as well as for the use of the “hard” cushion, in the next 24 hours, with the payment to follow by December 12, giving a strong message to the markets that the country is “aggressively” reducing its debt and continuously improving its fiscal position.
The European Stability Mechanism (ESM) and the European Financial Stability Fund (EFSF) – which hold approximately 54% of Greek public debt – have already approved the triple repayment requested by Greece and the official announcement is expected in the coming days, either before or together with the announcement of the ESM’s approval for the use of the 15.697-billion-euro cash buffer, which will be made on Tuesday, December 3.
The cushion was created in 2018 and could not be used until now, as it had been provided as a safety net in case of need after the country’s exit from the bailout process. Now that Greece has regained its investment grade, as well as financing from the markets, there is no reason for this cushion to wait. Therefore, the ESM judged that Greece can start using this money to reduce its debt. The agreement is, however, that this amount of €15.697 billion will be used in parts over three years. This year the country will be able to use approximately €5 billion, in 2025 another €5 billion and in 2026 the remaining €5 billion, in debt reduction moves.
Consequently, this year’s early repayment of the three installments of the Greek Loan Facility (GLF) will be made using part of the cash buffer that is now unlocked. On December 12, Greece will repay early the GLF installments (expiring in 2026, 2027 and 2028) which total €7.935 billion, with €5 billion that it is entitled to use from the cash buffer and the remaining €2.95 billion coming from “free” reserves.
The aim of the triple repayment is to provide some relief in the cost of servicing interest, which is however relatively small and amounts to tens of millions of euros over a three-year period, but mainly to send a strong signal to international markets about Greece’s capabilities.
The balance of bilateral loans stands at €39.54 billion, while after the triple payment of next month it will fall to €31.6 billion.