Greece has been thrown into further turmoil as the proposed bailout package agreed upon by members of the eurozone now faces uncertainty due to Germany’s contestation of the deal.
Despite Greek finance Minister George Papaconstantinou’s assurances that no country would hinder the bailout arrangement, a law professor at Germany’s Tubingen has said that he plans to challenge the legality of the deal in court. The agreement that was made will give Greece around 30 billion euros, with the IMF giving a further 15 billion if it is needed at a later date.
However Professor Joachim Starbatty has hit out at the bailout claiming that it breaches EU laws as it gives a loan below Greece’s market rate for bonds. Professor Starbatty told the Rheinische Post that: “We will file a suit at the Constitutional Court against the credit from euro states”. This opposing stance has led to a further rise of Greece’s market debt rate, leaving its safety in the balance.
When the Maastricht Treaty was signed Germany made sure that there was a “no bailout clause” for all eurozone countries. The agreement for Greece was thought to bypass this clause by giving unsubsidised bilateral loans. The rate given was around 5 percent and this is far lower than the 7.5 interest rate that markets charged last week. A note leaked to the Frankfurter Rundschau from the German central bank implies that Germany is still unsure with regards to giving Greece assistance “This agreement of the heads of government, which according to our knowledge has been reached without any consultations from central banks, implies risks to stability that should not be underestimated”.
Greece has had a torrid relationship with Germany and Europe’s strongest economy is reluctant to affect their own standing in the face of Greece’s woe. The German public are strongly opposed to a bailout and the German Chancellor, Angela Merkel, has been very vocal about helping the Greeks who she has previously accused of keeping their true extent of debt a secret from the rest of the EU, especially as the German Election looms. In what was an inflammatory move the German politician Josef Schlarman previously stated that Greece should sell parts of itself off to raise the cash needed, as opposed to asking other countries for help: “The chancellor cannot promise Greece any help, the Greek government has to take radical steps to sell its property – for example its uninhabited islands” said Shclarman.
However, despite the uncertainty and the opposition from Germany people are still optimistic with regards to the bailout being approved. Ben May from Capital Economists said: “The elections in Germany may make it a slightly trickier job to get the aid through. Given what has been said, Greece should get the aid but the latest news muddies the waters a bit”