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EU leaders weigh plan for Greek exit

Peter Spiegel in Brussels and Kerin Hope in Athens
Getty Images

Euro zone leaders are weighing a plan to allow Greece to exit its four-year-old bailout at the end of the year by converting nearly €11 billion of unused rescue funds into a backstop for Athens for when it raises cash from the markets on its own.

The plan, which will be discussed at a meeting of euro zone finance ministers in Brussels on Thursday,would allow Antonis Samaras, Greek prime minister, to declare an end to the quarterly reviews by the hated "troika" of bailout monitors ahead of parliamentary elections, which could come as early as March.

At the same time,backers of the plan believe it would give financial markets the security of knowing Athens could draw on the credit line in an emergency.

The credit line would come from the euro zone's €500 billion rescue fund, meaning it would still require monitoring from Brussels, albeit less onerous than at present. By tapping €11 billion originally earmarked for shoring up by Greek banks, euro zone officials hope to avoid political resistance from Germany.

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"In political terms, the money has already been made available to the Greek authorities," said an EU official involved in the negotiations.

Mr Samaras's hopes of a "clean exit" from Greece's €172 billion second bailout –which would mean no line of credit or additional outside monitoring – were dashed last month when Greek bonds were sold off in a mini-panic after he announced his intention to finish the bailout at the end of the year without any follow-on program.

"A completely clean exit is highly unlikely," said the EU official.

Greek officials are scrambling to finalize the remaining required economic reforms so they can agree the exit plan by December. Gikas Hardouvelis, the Greek finance minister,is expected to request the €11 billion credit line at Thursday's meeting. Greece is looking to raise €6 billion-€9 billion on its own for next year, a senior Greek government official said.

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The biggest remaining stumbling block remains the role of the International Monetary Fund in the plan. Unlike the EU, whose Greek bailout runs out of cash this year, the IMF program is due to run into 2016.

The IMF has become a lightning rod for political anger in Greece – Poul Thomsen, the blunt Dane who heads the IMF's Greek team, has to travel in Athens with a significant security detail – and Greek political leaders are eager to eject the Fund from the program.

"It's not helpful t ohave them camping in Athens," said one Greek official, referring to prolonged negotiations over the last bailout review which took nine months to complete.

But a group of euro zone countries led by Germany have insisted the IMF remain part of the program, arguing the Fund's independence and credibility is essential to gaining support for a credit line in the Bundestag.

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But under its rules, any participation by the IMF would require continued quarterly reviews of Greece's reform efforts.

Remaining resources in the Greek bank recapitalization fund, known as the Hellenic Financial Stability Fund (HFSF), have long been seen as a possible source of financing for Athens if it were to avoid a third bailout.

But it was not clear sufficient funds would be left over in the HFSF until the European Central Bank completed its highly anticipated euro zone bank stress tests, which were aimed at determining which financial institutions still required more capital.

The tests, unveiled justover a week ago, found three of Greece's largest banks still needed a combined €8.7 billion in capital as of the end of 2013. But it also said those same banks had raised nearly €6.5 billion on the capital markets since then.

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If the banks are able to raise the extra money through private fundraising, the entire €11 billion left in the HFSF could be used for the credit line.

Although technically the money would not be moved from one account to another – the HFSF funds are bonds issued by the euro zone bailout fund and not cash – a senior EU official said they would be treated as the same politically and should easily move through euro zone parliaments that would have to approve any new assistance to Greece.