The European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF) are paving the way for a new early repayment of debt by Greece through their decisions.

The new decision, announced on Tuesday afternoon, concerns the waiver of Greece’s obligation to make a proportional early repayment of its ESM/EFSF loans in relation to the early repayment of loans to the lenders of the Greek Loan Facility (GLF).

This decision means that:

• Early repayment is permitted: This waiver allows Greece, in the coming days, to proceed with a third early repayment of GLF loans (from the first support program of 2010), amounting to a total of €5.29 billion, using money from a special cash buffer account created at the end of the adjustment program.
• Improvement of debt structure: According to the ESM’s Managing Director, Pierre Gramegna, this move sends “another positive signal to the financial markets, improves the structure of Greece’s debt, and reflects the country’s improved fiscal position.”
• No proportional repayment required: Thanks to this waiver, Greece is not required to make a proportional early repayment to the ESM and the EFSF, something that would normally be mandatory under the loan agreements.

Essentially, the decision enables Greece to further reduce its debt to the GLF (of which €31.6 billion remains outstanding out of the €52.9 billion received under the First Memorandum of 2010) without being forced to simultaneously burden itself with repayment to the ESM/EFSF.

Specifically, the announcement by the ESM and EFSF states:

“The ESM and EFSF waive Greece’s repayment obligation, allowing a third early repayment of GLF loans.”

The Boards of Directors of the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF) today agreed to waive the requirement for mandatory proportional repayment of ESM/EFSF loans in relation to an early repayment to the lenders of the Greek Loan Facility (GLF).

The ESM Board of Directors also approved the use of funds from the special cash buffer account (i.e., the well-known “cash cushion” of the state, which was locked in an account at the Bank of Greece) that was created at the end of the adjustment program, for the execution of this early repayment.

According to the ESM and EFSF loan agreements with Greece, in the event of early repayment to certain official creditors, including the GLF lenders, a proportional amount of the financial assistance provided under the ESM and EFSF facilities becomes immediately due and payable.

However, thanks to the waivers granted today by the ESM and the EFSF, Greece will not have to proceed with a proportional early repayment to either institution.

ESM and EFSF Managing Director Pierre Gramegna stated: “Greece continues to make remarkable progress in strengthening its economy. This additional early repayment of the GLF loan sends another positive message to the financial markets, improves the structure of Greece’s debt, and reflects the country’s improving fiscal position. The ESM and EFSF remain committed to supporting the Greek authorities in their efforts to promote long-term growth and ensure debt sustainability.”

The waivers and the use of the cash buffer were granted in response to an official request from the Greek government, which proposed the early repayment of GLF loans maturing in 2033 and 2041, for a total amount of €5.29 billion, using the cash buffer.

The GLF was part of the first financial support program for Greece, agreed in May 2010. It consisted of bilateral loans from 14 eurozone countries, totaling €52.9 billion, of which €31.6 billion currently remain outstanding.

Greece completed the repayment of its loans to the IMF two years ahead of schedule in 2022. The last early repayment of GLF loans took place in 2024.