The European Union's Economic Affairs Commissioner Olli Rehn on Monday called the Greek parliament's approval of a further round of budget cuts a "crucial step forward," but Germany insisted it will still take some time before the second bailout is delivered.
Germany, which as Europe's biggest economy pays the largest part in bailout deals, said it won't give its final approval for the new aid payments until early March - after it is clear how well a debt relief deal with private bond holders would work and its parliament has voted on the new measures.
Pushing the new bailout back for several weeks underlines how much distrust has built up against Greece over the past two years, when many promised cuts and reforms were passed in Parliament but never actually implemented.
But it also means that Greece, its citizens and the rest of the world economy won't know for several weeks whether the country can avoid a potentially disastrous default. A bankruptcy could push Greece out of Europe's euro currency union, drag down other troubled eurozone countries and further roil global markets.
Greece's political leaders scrambled over the weekend to get new far-reaching austerity measures through Parliament ahead of a meeting of the finance ministers from the 17 euro countries on Wednesday. The drastic cuts debated on Sunday included axing one in five civil service jobs over the next three years and slashing the minimum wage by more than a fifth.
As Greek lawmakers voted on the new cuts, the streets of Athens and other cities were rocked by violent protests. In Athens, at least 45 buildings were burned while dozens of stores and cafes were smashed and looted. Police arrested at least 74 people and detained a further 92, while in several cases they had to escort fire crews to burning buildings after protesters prevented access.
However, the Greek Parliament's vote hasn't brought an end to the uncertainty. Apart from some technical decisions, several key issues remain:
-It is unclear whether the new spending cuts, the debt relief deal and the new bailout will be enough to bring Greece's debt load down to 120 percent of economic output by 2020 - the maximum its international creditors perceive as sustainable.
Several weeks ago, the EU estimated that there was still a financing gap of around €15 billion ($20 billion) and an EU official on Monday could not say whether the gap has since decreased. There is hope that the European Central Bank, which also holds a significant amount of Greek debt can help close that gap by forgoing profits on those bonds.
-Greece's debt sustainability depends on whether enough private investors participate in a bond swap designed to slice some €100 billion ($132 billion) off Greece's €350 billion ($464 billion) debt pile. Athens wants banks and other investment funds to exchange their old Greek bonds for new ones with half the face value, lower interest rates and longer repayment deadlines. But the deal will only work if almost all private bondholders take part. If not enough of them sign up, Greece could still pass new legislation that could force holdouts to participate.
-Athens still needs to spell out how exactly it plans to cut an extra €325 million in spending this year. The sum was included in the austerity package that passed through parliament, but Greece hasn't said where the money will come from. An EU official said Monday that much of the €325 million could come from further cuts to Greece's defense budget.
-The other 16 countries that use the euro are still waiting for the leaders of Greece's two main political parties to commit in writing to implementing the new austerity measures even after elections expected for April. Both the Socialists and the center-right New Democracy party backed the package in the parliamentary vote.
-National parliaments in Germany, Finland and the Netherlands will have to vote on the second bailout package. Since those countries are traditionally most critical of bailouts, the votes are unlikely to happen before there is clarity on whether the bailout deal will actually make Greece's debt sustainable again. Germany said its parliament will vote on Feb. 27.
Germany's insistence on taking more time to decide whether it is willing to send more bailout money to Greece means the final decision on the rescue loans will have to be split from the bond swap deal.
The swap offer for private investors has to be launched this week so that it can be completed ahead of March 20, when Greece has to redeem some €14.5 billion in bonds.
The finance ministers from the other 16 countries that use the euro as their currency could give Greece the green light to make the swap offer to investors at their meeting Wednesday, which would give investors several weeks to decide whether to participate.
