Sunday

28th Nov 2021

German parliament agrees second bail-out for Greece

  • Merkel: 'The chances that lie in the new programme outweigh the risks' (Photo: consilium.europa.eu)

The German parliament on Monday (27 February) approved a second bail-out for Greece, despite hearing from Chancellor Angela Merkel that there is 'no 100 percent guarantee' it will work.

In a keenly watched vote, 496 deputies were in favour of the €130bn aid package while 90 were against. The vote is a political boost for Merkel who has walked a political tightrope trying to sell the deal to a sceptical public, but it fell short of the symbolically important 'Chancellor majority' - reaching the threshold without the support of opposition parties.

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With mass selling tabloid talking about Greece being a "bottomless pit" and calling for a stop to sending aid to the stricken country - a sentiment shared by some prominent conservative politicians - Merkel admitted that the second programme may not be enough.

"The way ahead for Greece is long and it is truly not without risks. This also refers to the success of the new programme. Nobody can give a 100 percent guarantee of success," she said.

But she defended the second bailout by essentially saying it was the lesser of two evils.

Referring to discussions about "whether the eurozone would be better off without Greece than with it," the chancellor said: "These questions are justified."

But she added that having weighed up the arguments for both sides she came to the conclusion that "the chances that lie in the new programme outweigh the risks."

"Nobody is able to calculate what consequences a disorderly default by Greece would have for all of us - including people in Germany. Nobody knows what consequences it would have for the economic development in Germany," said the Chancellor.

Merkel also noted that there could be unpredictable effects on Portugal and Ireland - the two other bailed-out eurozone countries - as well as on Italy and Spain and finally on the eurozone and "the whole world."

But while the chancellor emphasized that the bail-out was an economic must, she also underlined the extra on-the-ground surveillance measures to make sure Greece sticks to its promises and the escrow account to be established to make sure that Athens' first duty is to pay back its debtors.

She also noted that the current programme runs until 2014 and the new money will be paid on in tranches only after specific conditions are met each time.

Merkel pointed to Italy, Spain and Ireland as examples of where progress towards "sustainable" policies have been made, noting in Ireland's case that "investors are already returning" and that Italy, the eurozone's third biggest economy, will achieve a balanced budget next year.

However, the chancellor refused to countenance raising the capacity of the eurozone's firewall to stop markets speculating about the financial well-being of Italy and Spain.

Instead, in what appeared to be a diversion move, the chancellor said Germany would pay its share into the permanent bail-out fund - the ESM - more quickly, within two years, rather than the five years foreseen. In 2012, Germany would release €11bn into the fund, she said.

The International Monetary Fund has indicated it expects the firewall to be boosted before it takes a decision on the precise sum it will contribute to the second Greek bail-out.

But Germany has staunchly resisted the move so far, with finance minister Wolfgang Schauble on Saturday saying a decision does not have to be taken at the EU summit on 1-2 March, as the month is "longer than that."

Greek bail-out threatened by Germany-IMF stand-off

Greece's second bail-out still faces hurdles as Germany and the International Monetary Fund are waiting for each other to move first on financial commitments related to the deal.

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Tasked with approving bail-outs, national budgets and labour market policies which affect the eurozone, national parliaments have almost become European institutions, the EU Council chief has said.

Germany prompts cancellation of euro summit

A meeting of eurozone leaders planned for Friday after the EU summit in Brussels has been cancelled because Germany is still saying No to increasing the firepower of eurozone bail-out funds.

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