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(Updates with Merkel comment in fourth paragraph. See EXT4 for more on the European debt crisis.)
Feb. 13 (Bloomberg) -- Germany and the European Commission welcomed Greek approval of the austerity steps demanded for a financial lifeline, suggesting euro finance chiefs will pull Greece back from the brink when they meet in two days.
The Greek parliament’s backing “is a crucial step forward toward the adoption of the second program,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels today. “I’m confident that the other conditions, including for instance the identification of the concrete measures of 325 million euros ($430 million), will be completed by the next meeting” of finance ministers.
Euro-area finance chiefs will convene in Brussels on Feb. 15 for their second extraordinary meeting on Greece in a week. Frustrated after two years of missed budget targets, ministers declined to ratify the 130 billion-euro package in a special session on Feb. 9, demanding that Greek officials put their verbal commitments into law.
“It’s important for now to complete this program -- and the passage in the Greek parliament yesterday was very important,” German Chancellor Angela Merkel said in Berlin. “The finance ministers will meet again on Wednesday to undertake the work on this, but there can’t and the won’t be any changes to the program.”
Global stocks and the euro rose after the Greek lawmakers passed the plan in the early hours of today as rioters battled police and set fire to buildings in downtown Athens. By siding with Greek Prime Minister Lucas Papademos to back the austerity measures, legislators probably did enough to win the second bailout on Feb. 15, said Christian Schulz, senior economist at Berenberg Bank in London.
“Whether or not the vote will reduce Greek uncertainties for long is a very open question,” Schulz said.
Pending approval of the bailout by euro finance chiefs this week, attention will shift to national capitals. Merkel plans to ask German lawmakers to vote on it Feb. 27. Other euro governments including the Netherlands and Finland have yet to schedule a date for parliamentary votes.
“There still is a risk that the whole process derails, but I think we’ll get the package together by the summit” of European leaders on March 1, Carsten Brzeski, senior economist at ING Group in Brussels, said by phone.
Still, German Finance Minister Wolfgang Schaeuble told German lawmakers on Feb. 10 that Greece was set to miss deficit goals. Schaeuble said that current plans would leave Greece’s debt as high as 136 percent of gross domestic product by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout, down from about 160 percent last year.
Greek political leaders must provide written assurances of their support for measures and policies in return for new financing for the country, government spokesman Pantelis Kapsis told reporters in Athens.
More than two years after the debt crisis emerged in Greece, European leaders face international pressure to do more to tackle the source of contagion that threatens to drag down the global economy. Group of 20 nations have signaled they won’t reach a consensus on crisis aid for Europe via the International Monetary Fund at a Feb. 24-26 meeting of G-20 finance chiefs until Europe increases the size of its firewall.
“A disorderly default of Greece would be a much worse outcome with devastating consequences for the Greek society, especially the weaker members of the Greek society,” Rehn said. “It would of course also have very negative ramifications through the contagion effect and chain-reactions through the whole European economy.”
In Athens yesterday, Prime Minister Papademos appealed to Greeks to support new measures before the final debate began. The steps include a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.
Part of the rescue includes a bond swap intended to slice Greece’s debt load. The swap for new 30-year bonds with an average coupon of as low as 3.6 percent would cut 100 billion euros off more than 200 billion euros of privately held debt. Finance Minister Evangelos Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.
Greece “will be saved in one way or another,” Schaeuble told newspaper Welt am Sonntag yesterday, though the country must still “do its homework.”
--With assistance from Maria Petrakis, Marcus Bensasson, Tom Stoukas and Natalie Weeks in Athens, Jones Hayden in Brussels and Rainer Buergin in Berlin. Editors: James Hertling, Leon Mangasarian
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