Greece's Preliminary Bailout Deal Faces German Turbulence

Updated on
Greece Secures Bailout Worth 86 Billion Euros

Greece’s third bailout risks being held up by German lawmakers just as the Greek government submits a new raft of proposals to its parliament, throwing into jeopardy a timeline that aims to get cash to the country.

Chancellor Angela Merkel faces resistance from within her parliamentary caucus to holding a lower-house vote on Greece early next week for political and practical reasons, according to two party officials from her bloc who asked not to be named because the legislative process is still under discussion.

Any delay in Germany risks derailing the narrow timetable for Greece and national parliaments in other euro-area countries to vote on the three-year deal before an Aug. 20 payment falls due to the European Central Bank. Without legislative approval in that timeframe, Greece would need to request further bridge financing to cover the ECB payment while the bailout is finalized.

“One needs to look closely and then we’ll ask the Bundestag for approval when the common understanding is that this will hold for three years,” Jens Spahn, a deputy to German Finance Minister Wolfgang Schaeuble, said on ARD television. “It has to be convincing that it isn’t just about Aug. 20 and an installment payment, but really about how, together with the Greeks, we can have a lasting solution.”

‘Political Agreement’

After almost two weeks of intensive talks, the four institutions representing Greece’s creditors -- the ECB, the International Monetary Fund, the European Commission and the European Stability Mechanism rescue fund -- forged an initial agreement early Tuesday on measures from pension changes to taxes that are intended to unlock about 85 billion euros ($94 billion) in funds for Greece.

“I’m optimistic that we will succeed in securing this deal and financial support from the European Stability Mechanism so we can put an end to the economic uncertainty,” Greek Prime Minister Alexis Tsipras said in a speech in Athens Wednesday. “A long, tough and painstaking negotiation is concluding.”

The yield on Greece’s 2.1 billion euros of 3.375 percent notes due 2017 rose 1 basis point to 14.9 percent at 2:58 p.m. in Athens. That’s down from a closing high this year of 61.1 percent in July.

Economic Slowdown

Tsipras’s government submitted a bill to parliament early Wednesday to approve the bailout agreement, which includes measures to liberalize Greece’s energy markets, changes to the tax and social security systems, a clampdown on early retirement and state asset-sales commitments. A vote in the legislature is set for Thursday before a tentatively scheduled meeting of euro-area finance ministers the following day.

Greece needs a quick release of at least 20 billion euros just to create a buffer for its banks and to make loan repayments. Before that can happen, agreement on the technical aspects of the deal must be followed with a “political agreement,” European Commission spokeswoman Annika Breidthardt told reporters in Brussels.

The Greek economy is forecast to contract 2.3 percent this year and 1.3 percent in 2016, according to a European Union official, who asked not to be named because bailout negotiations are private. The economy may expand 2.7 percent in 2017 and 3.1 percent the following year, the official said.

Pressure Building

Merkel discussed Greece on Tuesday with Francois Hollande of France and commission head Jean-Claude Juncker, as well as with Tsipras. Greek television cited unnamed Greek officials as saying that Merkel also spoke with Tsipras on Monday evening, telling him she would rather he asked for a bridge loan. Her office confirmed the call though refused to discuss its content.

Pressure is building on Merkel after 60 lawmakers from her caucus voted against opening bailout talks with Greece last month. Having survived that revolt, party leaders want to avoid another situation in which members are again summoned back from their summer recess at short notice to prevent a Greek bankruptcy without adequate information on which to base their vote, the two officials said.

“The accord takes us in the right direction, but of course we now need to look at the details,” Steffen Seibert, Merkel’s chief spokesman, said in Berlin. “We don’t have all the documents yet. That’s what counts -- as do the Greek government’s actions. We will take a close look.”

Merkel’s Social Democratic Party coalition partner will meanwhile offer “great support” for a Greek bailout, said Ingrid Arndt-Brauer, an SPD lawmaker who chairs the Bundestag finance committee.

“There’s no doubt that we want to help the Greeks,” she said in an interview.

Read this next:

Before it's here, it's on the Bloomberg Terminal. LEARN MORE