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While all the drama of yesterday’s Greek austerity plan vote may have led you to believe we’re well and truly done here, and all is in the hands of Europe’s leaders, we’re not out of this yet.There’s one more vote to come, on the issue of implementation. And there’s a risk it won’t pass properly, according to Societe Generale’s Michel Martinez.
Against a backdrop of violent demonstrations, George Papandreou’s PASOK government won a first vote on Medium-Term Fiscal Strategy (MTFS) on Wednesday 29. The vote brought a sign of relief but the focus now shifts to the second hurdle: the associated implementation law which is expected today at midday local time (11 CET). If all goes well, the Eurogroup will then meet on July 3 to finalise a new 3-year programme for Greece involving the private sector.
IMF/EU will only disburse if the implementation law does not lose its inner significance. The Parliaments agreed yesterday on the package as a whole. The risk is now that it modifies substantially some implementation measures, as a result of which the modified MTFS could not meet IMF/EU requirements. The IMF made it clear that the July tranche to Greece can only be disbursed if 1) Greece adopts the austerity package 2) the EU provides concrete assurances that it will continue to provide funding to Greece as stipulated under the EU/IMF adjustment programme. In other words, only after the MTFS is approved can the Troika officially put forward a medium-term funding plan for Greece involving private creditors, through to 2014.
So this next vote is a little more tricky to monitor. It’s not so much of a yes, or no, but rather the detail about the legislation itself. If it’s not changed, then the IMF/EU are likely to be pleased, and we’ll get real progress by the end of the weekend on this second bailout. If they are not, then the whole process could blow up. SocGen’s Martinez rates this probability as “non-negligible.”
The vote, which was originally supposed to be today, may now be tomorrow. Or it could be in 30 minutes. Uncertainty reigns, but this is surely a situation to keep your eye on, at least for a few more hours.
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