The Bailout Tripwire That Will Force EU Leaders To Give Greece More Money

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European leaders must give Greece more money if it is to be eligible for the next tranche of its IMF bailout loan, according to Der Spiegel. The IMF is set to provide Greece with another portion of its bailout, but can only do it if the country displays the ability to pay its debts over the next 12 months (that is, avoid default).At the moment, there’s no evidence Greece can do that, as it can’t go back to the market to sell bonds, and doesn’t have enough cash in its coffers to pay the bills either. So in order to get part of another bailout, Greece needs to be bailed out a second time.

The problem is, another Greek bailout could end German Chancellor Angela Merkel’s reign, as support for Greece and the bailout is in sharp decline. Der Spiegel suggests she may even need to call a no-confidence vote to get new bailout legislation passed. A loss would bring about sharp changes in Germany, and potentially mark the start of an even more eurosceptic policy position.

All of this makes crystal clear how this situation will play out. The European leadership has no choice but to give Greece more money, so they will. But if a domestic parliament in Germany, or elsewhere, rejects the deal on concerns it’s just money being thrown away, a political accident could lead to a default or restructuring, before the preferred 2013 date.

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