Germany Doubles Down On Greece, But What Happens Next?

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Guy Bentley Research Associate, Reason Foundation
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The German Parliament has voted overwhelmingly to begin negotiations on Greece’s third bailout package worth $93 billion, but the crisis is far from over.

Chancellor Angela Merkel warned her Conservative CDU party that the result of failing to agree to the negotiations would be “predictable chaos” and that she was “absolutely convinced it was the way forward.”

While the vote passed with 439 members of parliament in favor of the negotiations Merkel faced a rebellion by 60 of her parliamentarians. “If we don’t have the courage to end it – Greece won’t make it in the euro zone – there will be a fourth and a fifth bailout for Greece,” conservative Klaus-Peter Willsch told Reuters.

The vote comes after a recent YouGov poll showed German taxpayers are increasingly frustrated at picking up the tab for Greece. More than 60 percent of Germans said they wanted Greece to abide by the original bailout terms, with just 26 percent saying they would accept a softer line. (RELATED: What You Need To Know About The Greek Deal)

Greece, which has already voted in favor of the package containing more spending cuts and a slew of privatizations, has also been granted a loan of $7.6 billion by European Union finance ministers. The loan is earmarked to keep Greece from going bankrupt and to pay debts owed to the International Monetary Fund and the European Central Bank.

The ECB is, for the moment, keeping the Greek banking system on life support with $978 million of emergency liquidity. Greek banks have been closed for two weeks and are under strict capital controls with Greeks only able to withdraw €60 a day. But in the wake of the bridging loan and new bailout talks, Greece’s government hopes the banks will reopen next week.

With Germany on board, fresh talks will begin in earnest on a new deal between Greece and its creditors. The European Commission Vice President Valdis Dombrovskis said he hoped the three-year bailout program would be agreed within weeks. One issue to be on the agenda will be debt restructuring.

“On debt, I would expect this being a part of the negotiations because this is also something the IMF insists on. There is also a clear conclusion of the Euro Summit that the IMF should be a part of the third program,” Dombrovskis said following the German vote.

However, analysts are sounding a note of caution on the prospects of a future deal. Writing in the Telegraph, German economist, and President at the Halle Institute for Economic Research, said “Germany’s parliament has approved the bailout, but implementation will be extremely tricky, given that the Greek government does not fully endorse the program and depends on the opposition for implementation.”

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