The Greek parliament votes final approval on an austerity package--now fate of second rescue plan rests with the Germans

06/30/2011 12:46 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Now the spotlight moves from Athens to Brussels and Frankfurt. Today, June 30, the Greek parliament passed legislation to implement the austerity package it approved yesterday. That means the Greek legislature has now passed the bills that the European Union, the European Central Bank, and the International Monetary Fund said were required before the troika would pay out the next $17 billion installment from the first Greek rescue package. Greece needs the cash to avoid defaulting on about $9 billion in bonds in August.

The big question is Can EuroZone leaders agree on a second rescue package to get Greece from 2012 (when the first package runs out) to 2013-2014? The first package was designed with the idea that Greece would be able to access the financial markets again in 2012 to fund its debt. That was just a tad optimistic. The second package would take Greece to 2013 or 2014 with the hope that by that time the country would be able to tap the financial markets for funding.

Positive news on that front too today as German Finance Minister Wolfgang Schaeuble said that Germany banks have agreed to roll over about $3 billion in the Greek bonds that they own that mature by the end of 2014. One sticking point in negotiations over a second rescue package has been German insistence that bondholders share the pain. Originally Chancellor Angela Merkel and Finance Minister Schaeuble demanded that banks be required to participate in rolling over maturing Greek debt. That ran into determined opposition from the European Central Bank and the from credit rating companies who said that they would regard mandatory participation as equivalent to a default. The Germans have now agreed to voluntary participation but the details of that plan, including what banks would be offered to participate, are still being worked out.

On all this good news—plus a repeated signal from European Central Bank president Jean-Claude Trichet that the bank would raise interest rates when it meets on July 7—the euro climbed 0.53% against the U.S. dollar to $1.4512 as of 11:20 New York time. The German DAX stock index was up 1.05% and the French CAC was up 1.41%.

 

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