The German Bundestag and other parliaments of eurozone countries will have to give the second bailout plan for Greece their go-ahead. The rescue package also needs the support of the International Monetary Fund.
German parliamentarians decide Monday on the second bailout for Greece worth 130 billion euros ($173 billion). Instead of voting on a law, they will vote on a resolution stating the intention to agree to the bailout deal. This is because technically, the deal has not been clinched. As Finance Minister Wolfgang Schäuble wrote in a letter to the Bundestag, the exact amount of credit needed by Greece over the course of the next three years is impossible to be determine at this point.
For its part, the International Monetary Fund (IMF) has made its support of the deal dependent on a contribution from the private sector.
IMF awaiting result of debt swap
According to a plan devised by the 17 eurozone finance ministers, private sector lenders, such as banks, insurance companies and mutual funds, will have to write off some 100 billion euros in government bonds. Greek Finance Minister Evangelos Venizelos said private creditors will have until March 12 to conclude a debt swap. Once the private sector is on board, the IMF executive board is expected to vote on supporting the bailout in mid-March. The IMF is slated to contribute some 13 billion euros, or roughly 10 percent of the total amount.
The IMF has already contributed some 30 percent to the first bailout package for Greece, which was agreed on in May of 2010. But the United States, which due to the size of its economy contributes the most of all IMF members to the fund, wants more money from Europe to go into saving the euro currency.
Deducting the IMF share of 13 billion euros, the European Financial Stability Facility (EFSF) will have to give 117 billion euros in loans to Greece over the next three years. Given its 29 percent share in the EFSF, Germany will have to contribute loan guarantees totaling 34 billion euros.
The lower house of the German parliament, the Bundestag, already agreed to these guarantees in principle when it voted to extend the European bailout fund last September. Now, parliament will have to assign the debt guarantees to a specific country.
But a critic of the Greek bailout plan, Wolfgang Bosbach of the conservative Christian Democratic Union, told German broadcaster ZDF: "Greece does not need loan guarantees. Greece needs economic power and competitiveness and an efficient administration."
Not in a hurry
Contrary to the widespread belief that Greece faces default on March 20, the rescue plan for Greece will not have to be stitched together by then. While on that day, some 14 billion euros in Greek bonds will be due, the amount can be paid with funds left over from the first bailout package, which still has 37 billion euros available.
The conservative parliamentary group's spokesman Norbert Barthle said this sum should be used up before the second rescue package comes into play.
According to Bosbach, the danger lies in simply buying time by passing rescue package after rescue package. Schäuble admitted as much when informing the German parliament that eurozone members were expecting Greece's financial restoration to continue at least another eight years. With this second bailout merely spanning the next three years, only an economic boom would make a further bailout package unnecessary.
More than one parliament's approval needed
Because Germany is the biggest contributor to the EFSF and as such carries the biggest risk in the case of default, the German parliament's approval is crucial. The French National Assembly has already approved the bailout deal, just like much smaller Estonia, which holds only a 0.27 percent stake in the EFSF.
Consent could become critical in the Netherlands. Finance Minister Jan Kees de Jager intends to inform parliament by the end of the week, but a date for a parliamentary vote has not been set. It could be moved to some time after parliamentary elections in Greece. In an interview with the French daily "Le Monde," the Dutch finance minister called into question Greece's capacity for reform.
In Finland, too, parliament remains skeptical of the rescue package. Alexander Stubb, the minister for European affairs, said at a lecture in Brussels that his countrymen were appalled at the Greek debt crisis because they had believed in fair rules of the game and in European principles. However, details of a parliamentary vote on the subject have yet to be determined. In Slovakia, Cyprus, Malta and Portugal, parliaments will also vote on the deal while parliamentary decisions are not needed in any other eurozone member countries.
Stricter controls for Greece
In order to secure the second bailout, Greece has agreed to yet stricter austerity measures, and to a stricter control of its budget management. Staff from the EU Commission will now control Greek budget management, EU Monetary Affairs Commissioner Olli Rehn confirmed in Brussels. Besides monitoring, however, his staff also wanted to help build up a functioning tax administration.
"We are both the umpire monitoring the budget but also want to offer our help as a kind of coach giving technical assistance," Rehn said. "Such a twin role is not easy, but we will just try to do it."
An escrow account has been set up to directly collect debt servicing payments every quarter. Guntram B. Wolff, deputy director of the European think tank "Bruegel", said such an abdication of sovereignty can become dangerous: "It's risky in terms of political strategy. The Greeks have to accept this at the moment because they find themselves between a rock and a hard place. But that acceptance may waver; for instance, after parliamentary elections in April."
Wolff added it might be possible for the new Greek government to question the entire bailout deal because this escrow account could be seen as undemocratic.
Eurozone members waive income from interest
Besides aid from the EFSF and the IMF, the European Central Bank as well as eurozone central banks and the countries themselves will grant further relief to Greece. Eurozone members will reduce interest rates for the loans already granted to Greece and extend the credit period. The ECB intends to channel the profits it makes from buying up Greek bonds back to Greece, meaning that eurozone members, as ECB shareholders, will waive their entitlement to earnings.
Financial experts from Barclays Bank in London estimated that the relief Greece gets from these measures will total another 12 billion euros. The German finance minister, however, also benefits from the Greek debt crisis, because the costs for issuing German bonds have sunk to a record low. In turn, German taxpayers save on interest for new debt.
Author: Bernd Riegert/ ar
Editor: Gregg Benzow