Eurozone: Behind the scenes of Germany's "yes"

Today’s vote in the German parliament will no doubt bring a “yes” for the third Greek bailout package. While the outcome of the vote might not be spectacular, the details are clearly explosive. Greece and the ongoing negotiations have been the dominant topics for German politicians and common people over the entire summer. With today’s vote in the Bundestag, the German parliament could end these discussions; at least for the time being. To be precise: 631 German MPs have returned from their summer vacation to vote on the third bailout package for Greece. Chancellor Merkel’s government holds 504 seats and, moreover, at least one opposition party – the Greens (holding 63 seats) – already announced it would also vote in favour of a third Greek package. Consequently, anything else than an overwhelming “yes” vote would be a surprise. Nevertheless, today’s vote will be a test for Angela Merkel’s leadership. While opposition from other German parties against the new Greek bailout package has been rather muted, it is Merkel’s own party – the conservative CDU – which is still struggling with support for Greece. When the German parliament voted on the start of the official negotiations with the Tsipras government, 60 members of Merkel’s party voted against. In recent days, the “no” voters have received increasing media attention in Germany. According to reports, Merkel’s chief whip, Volker Kauder, had threatened possible dissidents that they would face consequences, like losing posts and positions in the party, in case they do not stick to the official party line. Against this background, all eyes will be on the exact number of “no” votes from Merkel’s own party today. A number higher than the earlier 60 would not immediately be a problem for Merkel. There simply is no crown prince or princess in her own party, neither are there any signs of a palace revolution. However, in the longer run, a growing number of dissident votes would clearly weaken Merkel’s position in the government and might eventually even reduce her appetite to run for a fourth term in office in the 2017 elections. On a more substantial point, the German government will continue having a hard time, even after today’s vote. It’s the role of the IMF in the third Greek bailout package. German politicians have frequently said that there would be no new package for Greece without IMF participation. At the same time, however, IMF participation would mean debt relief or even debt forgiveness for Greece. At least the latter is something, the same German politicians have been strongly opposing for a long while. How the German government wants to square this circle is still unclear. In our view and judging from last Friday’s Eurogroup statement, a face-saving compromise could be that initially IMF participation would be limited to technical assistance, monitoring and surveillance of the Greek reforms. Later, probably in October after a first successful assessment of the Greek measures and their implementation, the Eurogroup could decide on debt relief measures and then bring the IMF on board with additional financial assistance. Such a scenario seems to be backed by Friday’s Eurogroup statement which said that “in line with the Euro summit statement of 12 July, the Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and repayment periods) aiming at ensuring that Greece's gross financing needs remain at a sustainable level. These measures will be conditional upon full implementation of the measures agreed in the ESM programme and will be considered after the first positive completion of a programme review.” All in all, today’s vote might not be as interesting as another episode of “House of Cards” but it has at least the potential to provide some explosives, even Francis Underwood would pay attention to.