Restive Bundestag to approve Greek bailout extension

February 27, 2015

German Chancellor Merkel, members of government and parliament observe a minute of silence during a session of the lower house of parliament Bundestag in Berlin

Germany’s parliament will vote today on the extension of Greece’s bailout by four months and will duly back it though we can expect some grumbling from a clutch of lawmakers.

Angela Merkel’s coalition has a big enough majority to win the vote in the Bundestag easily but many politicians, including Finance Minister Wolfgang Schaeuble, have expressed concern in recent days about whether Athens is to be trusted.

The German press is playing rough. Top-selling Bild has spoken of Greek “trickery” and broadsheet Die Welt asked: “What’s the betting the Greeks will be back in four months?”

In a test ballot on Thursday, 22 of 311 lawmakers in Merkel’s conservative bloc opposed the extension and five abstained. Their Social Democrat (SPD) coalition partners, with 193 seats, voted unanimously in favour.

Even with the backing of national parliaments, Greece has a pressing funding problem before it begins tough negotiations to agree a third bailout programme.

The euro zone and European Central Bank have so far refused to countenance raising the limit on short-term Greek T-bill issuance. Several billions unused from Greek bank bailout funds appear to be off limits and while Athens wants to use 1.9 billion euros in profits that the ECB has made on its holdings of Greek government bonds, that also appears to be off the table … at least until more concrete reform progress has been made.

So where is the money coming from to allow it to pay its bills and stay afloat?

EU economics commissioner Pierre Moscovici said the new Greek government must have financing to allow it to pursue its reform programme and that any talk about debt relief was not for now. There could be no debt haircut, the former French finance minister told German radio, and as for a third Greek bailout he said “we’ll have to see how things go”.

The only good news is that depositors have started putting their money back into Greek banks, removing the immediate need for more emergency funding assistance from the ECB via the Bank of Greece.

An array of euro zone inflation data from Germany, Italy and Spain are due, all of which will give negative readings to varying degrees. Yet only Italy could be said to be suffering from the effects of deflation.

German GDP growth was robust in the fourth quarter of 2014, driven by domestic demand, and now Germany’s largest trade union has secured a heavily inflation-busting pay rise – which generally sets the bar for other sectors – promising more consumer spending to come.

Spain has clearly turned a corner and the government thinks growth could near the heady heights of three percent this year. Italy, on the other hand, remains mired in recession.

Moody’s is due to review the credit ratings of Germany, Austria and Luxembourg.

UK data released overnight showed British consumer confidence held steady at a high level this month as low inflation and rising wages made Britons more confident about their finances. GfK’s consumer confidence index held at +1 in February, matching January’s reading that was the highest since last August.

Ukraine is beginning to withdraw artillery from the front line with separatist rebels in the east, a move that amounts to recognition that a ceasefire meant to take effect on Feb. 15 is holding at last. The pro-Russian rebels have already been pulling back heavy weapons for two days, but Kiev had held back.

After a tumultuous fall, Ukraine’s central bank appeared to stabilize the hryvnia on Thursday having slapped on currency controls and just as abruptly removed them earlier in the week.

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