German Policy Watch

November 1, 2012

European Rescue Packages: A primer on the parliamentary agenda in Germany

• While Europe is heading for the next Eurogroup meeting on November 12, the German agenda for a possible readjustment of Greece’s rescue package and future rescue packages for other EMU countries remains unclear. In contrast to what has been broadly expected by (foreign) observers, these decisions will not be approved in just one voting phase in the German Bundestag.
• The second tranche of the current programme for Greece needs to be explicitly approved by the Bundestag’s budgetary committee before the decision can be formally taken by the Eurogroup. Another decision is due on the readjustment of the second programme for Greece. If that adjustment consisted of a deferment of interest payments only, an approval by the budgetary committee would also be sufficient and both votes could be bundled. Irrespective of that both the government and the Bundestag could aim for a voting in the entire assembly for reasons of political legitimacy in both decisions.
• Any other possible country programmes (talks center around Spain, Cyprus and probably Slovenia) need to be approved by the entire Bundestag by simple majority. The approval of all tranches and programmes is very likely. The most controversial political debate could take place on the possible redesign of the economic adjustment programme for Greece.

While Europe is heading for the next Eurogroup meeting on November 12, the German agenda for a possible readjustment of Greece’s rescue package and future rescue packages for other EMU countries remains unclear. All of these packages need to be approved by the legislatives in most EMU countries – and also by the German Bundestag. In the months ahead, there could be up to five items on the legislative agenda – and in contrast to what has been expected by many observers, there is a high probability that these decisions will not be approved in just one voting phase in the Bundestag.

November: Two votes on Greece

Second tranche of the second economic adjustment programme for Greece amounting to EUR 31.5 bn. Greece needs the next tranche in order to pay back an expiring 3-month bill worth EUR 4.06 bn by November 16 if it does not want to continue its T-bill-based short-term refinancing strategy. Although the agenda could still be subject to changes, the Eurogroup could take its decision on November 12. A Eurogroup conference call on October 31 made clear that – while requirements for consolidation and privatisation efforts had been lowered – a positive decision on the next tranche could only be justified by a constructive Troika report. The involvement of the German Bundestag would be a vote by the budgetary committee (simple majority) in order to formally mandate finance minister Schäuble to take the decision for the next tranche – most likely after November 12. Given the lack of clarity on the reform progress and the Troika’s judgment on Greece, MPs from the budgetary committee could criticise that they had not received the Troika’s report beforehand. However, this would not have any influence on the positive outcome of the vote.

Two variations could apply: (1) Depending on how tolerant the Troika will be in its assessment on Greece, both the government and the Bundestag could also decide to have the whole plenary assembly vote on the package for political reasons. (2) Apart from that, what cannot be ruled out is a division of the next tranche in order to keep at least some element of the hitherto watered down conditionality. That decision, in turn, would not have to be approved separately.

Realignment of the second economic adjustment programme for Greece in order to cover a financing gap of about EUR 30bn. Major details on the sum needed and the elements of the programme that are to be redesigned are not yet clear. According to a statement by Commissioner Olli Rehn, the decision could also be made on November 12. However, the different options that are currently being discussed (deferment of interest payments, outright haircut, bond buy-back) could create bigger political turbulences than the simple decision about the disbursal of a tranche – also in parliaments. Recent newsflow suggests that the solution would at least include a deferment of interest payments.

If the changes to the second programme for Greece consisted of a deferment of interest payments only, the involvement of the budgetary committee would also be sufficient. Only in that case, the two decisions on Greece could be bundled in one voting phase – most likely after 12 November. Irrespective of that Berlin could aim for a voting in the whole assembly for reasons of political legitimacy in both decisions.

Three possible votings on Spain, Cyprus and potentially Slovenia

• 2012/2013: Spain’s potential application for ESM support (widely anticipated as taking the form of a precautionary funding), paving the way for possible ECB secondary market interventions. While Spain’s financing situation has become less critical with yields on secondary markets having narrowed recently, the country’s application for support could well be an issue to be discussed at the next European Council on November 22/23. However, that does not mean that Spain would apply for financial support still this year. Against that background, the dates of a formal decision by the Eurogroup on Spain and, accordingly, the approval processes in the euro-area countries are still unclear. Approval by the Bundestag would need a simple majority in the entire assembly of the Bundestag
• 2013: Cyprus’ application of June 25 for a fully-fledged ESM programme of up to EUR 15 bn is currently under negotiation. Last week, Cyprus presented counter-proposals to the Troika and is now waiting for rescue negotiations to commence. All parties involved are aware that the negotiations could take longer due to the fact that Cyprus has a low systemic relevance and to current negotiations with Russia about its role as white knight – the more time Cyprus has, the better. Thus, the German government considers the approval of Cyprus’ application for financial support to be due probably not before early 2013. It would need a simple majority in the entire assembly of the Bundestag.
• While an application by Slovenia cannot be excluded for the year to come it would still be too early to assess whether that application would be for a fully-fledged programme or aid for the financial sector. In any case, the application for support would have to be approved by the entire Bundestag with a simple majority.

All votings are to be decided by simple majority. As there is broad agreement on the euro as a political project among all fractions in the Bundestag, the approval of all tranches and programmes is very likely. The most controversial political debate could take place on the possible redesign of the economic adjustment programme for Greece – most likely still in November.

Author :
Nicolaus Heinen +49 69 910 31713, nicolaus.heinen@db.com