February 17, 2015 / 12:51 PM / 4 years ago

Greek bank rescue fund's cushion reverts to lenders if no deal

ATHENS (Reuters) - Greece’s radical new government, under pressure from euro zone partners to stick with an international bailout, could see billions of euros sitting in its bank rescue fund return to its lenders if a deal fails to materialise by end-February.

Greek Finance Minister Yanis Varoufakis (L-R), European Investment Bank (EIB) President Werner Hoyer and Croatian Finance Minister Boris Lalovac attend a European Union finance ministers meeting in Brussels February 17, 2015. REUTERS/Francois Lenoir

The Hellenic Financial Stability Fund (HFSF), seeded with 50 billion euros (37.16 billion pounds) to recapitalise the country’s banks, has a remaining cushion of about 11 billion euros in European Financial Stability Facility (EFSF) bonds that Athens will forfeit if the current impasse is not resolved.

The AAA-rated paper is earmarked for bank recapitalisation and resolution. If its availability is not extended beyond Feb. 28, when the current bailout ends, the bonds will be handed over to their issuer, the EFSF, and the sum deducted from Greece’s debt.

“Every year the availability period of these bonds needs to be extended,” a senior HFSF official told Reuters on Tuesday.

“If an extension of the programme is agreed, we can ask for the availability of the bonds to be extended. We are in a wait-and-see mode on the outcome of the negotiations,” the official said.

When Greece’s previous conservative-led government agreed to a two-month extension of the current bailout programme to the end of February, it requested a similar extension in the availability of the EFSF bonds.

Greece’s euro zone partners want it to accept a six-month extension of the bailout, which Athens has rejected. A draft communique that was not issued at a meeting of euro zone finance ministers in Brussels included wording on the EFSF money.

“The Eurogroup looks favourably at such an extension,” the draft rejected by Athens said. “Following a request by Greece, the EFSF can make the necessary arrangements.”

The offer spelled out that the funds could be used only for bank recapitalisation and resolution costs and would only be released “on the basis of an assessment by the institutions and a decision of the Eurogroup”.

Greece’s previous government wanted to repurpose the HFSF bonds as part of a precautionary credit line - a backstop in case borrowing on capital markets ran into difficulties.

Any change of use of the funds would need the green light by Greece’s lenders.

Editing by Jeremy Gaunt and Paul Taylor

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