Greece Bridge Loan to Use Guarantee to Protect Non-Euro Nations

The European Union’s 7 billion-euro ($7.6 billion) loan to keep Greece afloat until its full bailout is approved will have two layers of guarantees and will be finalized by midday in Brussels.

“There’s actually two-fold protection” for the common-currency countries and the nine nations that don’t share the euro, Valdis Dombrovskis, European Commission vice president for euro policy, said in a Bloomberg Television interview Friday.

Greece needs short-term financing to help it meet a repayment of 3.5 billion euros to the European Central Bank on Monday and keep the country afloat while negotiations continue on a three-year bailout of as much as 86 billion euros.

In addition to Greek funds held by the ECB to be used as collateral, countries will also be protected because the loan will be made “against the guarantee of the EU budget,” Dombrovskis said.

“It means that if the payments are not made, there is also the possibility actually to withhold future payments from the EU budget from Greece and also in this way to recover this loan,” he said.

Non euro-area governments said they were worried the bridge financing could have an impact on them because it’s coming from the European Financial Stabilization Mechanism, which involves all EU nations rather than just those in the single currency.

There’s political agreement on the bridge loan “so I wouldn’t expect any surprises,” Dombrovskis said. “Right now we are ongoing the formal procedure which is going to be finalized at noon today.”

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