On Tuesday, following three weeks of negotiations, the so-called troika of the International Monetary Fund, the European Commission, and the European Central Bank agreed to release €44 billion ( $57 billion) in critical loans to Greece in order reduce the country’s debt to €40 billion, or 124 percent of its gross domestic product. The European and global financial leaders also settled on a debt buyback program and decided to provide billions in additional debt relief to stabilize the Greek economy.
But the deal still requires the authorization of several European Parliaments, including Germany’s. While Reuters reported that approval is virtually guaranteed, Germany’s chancellor Angela Merkel may have to rely on votes from the opposing Social Democrats and Greens to pass the aid package. However, with elections approaching in September 2013, the particulars of the deal have already begun a debate between Merkel’s Christian Democrat coalition and the Social Democrats, or SPD, in the Bundestag, the parliament’s lower house.
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The point of contention between the two sides is the possibility of public sector haircuts, a practice which subtracts a percentage from the market value an asset that is being used as collateral. The government has said previously that a public sector haircut would be illegal under German law. When speaking to reporters on Tuesday, Finance Minister Wolfgang Schaeuble said that euro zone ministers had rejected new haircuts, yet he acknowledged that they may be a possibility if Greece reaches a sustainable primary surplus.