(Reuters) – Euro zone finance ministers backed on Thursday a precautionary credit line for Greece after the country exits its bailout at the end of the year, in a bid to balance the need to reassure investors with the demands of domestic Greek politics.
The Greek government has staked its survival on regaining economic policy-making sovereignty after the end of the euro zone lending program this year and on exiting an IMF bailout a year earlier than the originally envisaged 2016.
Such a move would please voters, hammered by austerity measures imposed by the EU and the IMF, ahead of possible elections next year. But it has already rattled markets, pushing up Greek bond yields.
Finance Minister Gikas Hardouvelis told Reuters on Wednesday he hoped for an interim period of up to a year after exiting the bailout during which Greece will still get a financial safety net but would no longer be “micro-managed” by lenders.
After two international bailouts totaling 240 billion euros since 2010, when private investors refused to lend to Athens any more, Greece wanted to switch back to market financing from the start of next year.
But markets reacted nervously to the plan, worried that Athens would no longer have any financial back-up. Greek benchmark 10-year bond yields rose to 8.9 percent in late October from 5.6 percent in early September.
Greece and euro zone finance ministers discussed ways to provide Athens with fall-back financing to boost investor confidence, while addressing domestic political sensitivities.
“There is strong support for a precautionary credit line in the form of an existing ESM tool called the ECCL — Enhanced Conditions Credit Line,” the chairman of euro zone finance ministers Jeroen Dijsselbloem told a news conference.
The European Stability Mechanism (ESM) is the euro zone’s bailout fund created to rescue governments cut off from markets but only in exchange for a reform package.
“That is the path we will now further pursue and work on the conditions that will go with that,” Dijsselbloem said.