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.
In contrast, Michael Meister, a deputy leader of the Christian Democrats, told Reuters that he did not see such a haircut as being part of the deal. “If this were the case, then the Bundestag would have to decide … not to approve the next tranche of aid,” he said, indicating that the deal would be unacceptable if lawmakers determined that it would pave the way for further Greek losses.
SPD parliamentary leader Frank-Walter Steinmeier also disagreed with public sector haircuts, but for other reasons. He told Reuters that his party would take no action that could “lead to Greece becoming unable to make its payments in the short term or could force it to leave the euro zone.” Steinmeier accused Schaeuble of deceiving the German public. “Mr. Schaeuble brags to his own bloc that a debt haircut has been avoided but I tell you it has just been postponed to after the Bundestag elections,” he told German TV
Another problem facing German lawmakers, is the “underlying vein of resentment among German taxpayers at having to bail out euro zone countries less frugal than themselves.” The possibility of new haircuts brings even more concerns, as it would mean German taxpayers would be paying part of the bill.
The deal will be put to a vote in the Bundestag on Thursday or Friday.
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