Amid fury at cuts, Greece must wait for bail-out cash

The European Union called the approval a “crucial step forward” but added it would still take some time before the second tranche was delivered.

Germany’s finance ministry said its country would not give its final approval for the new aid payments until early next month – after its parliament had voted on the new measures and there was clarity on how well a debt-relief deal with private bond holders would work.

Pushing the new bail-out 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 implemented.

But it also means Greece, its citizens and the rest of the world economy will not know for several weeks whether the country can avoid a potentially disastrous default.

Greece’s political leaders struggled over the weekend to get new austerity measures through parliament ahead of a meeting of finance ministers from the 17 eurozone countries tomorrow. 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 MPs voted on the new cuts, the streets of the capital and other cities were rocked by violent protests. In Athens, at least 45 buildings were burned while dozens of stores and cafés were smashed and looted. In several cases, police had to escort fire crews to burning buildings after protesters prevented access.

At least 74 people were arrested, and police said they detained a further 92.

The new rescue loans are needed to prevent Greece from a potentially catastrophic default next month – a bankruptcy that could push the country out of the euro currency union, drag down other troubled eurozone nations and further disturb global markets.

However, the Greek parliament’s vote has not brought an end to the uncertainty. Apart from some technical decisions, several key issues remain:

It is unclear whether the latest spending cuts, the debt relief deal and the new bailout will be enough to bring Greece’s debt load down to 120 per cent of economic output by 2020 – the maximum that its international creditors perceive as sustainable.

Several weeks ago, the EU estimated there was still a financing gap.

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.

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 in April. Both the Socialists and centre-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 bail-out package, and, since those countries are traditionally the most critical of bail-outs, the votes are unlikely to happen before there is clarity on whether the latest deal will actually make Greece’s debt sustainable again.

Germany’s insistence on taking more time to decide whether it is willing to send more bail-out money to Greece means the final decision on the rescue loans will have to be split from a related deal with the country’s private bondholders designed to slice some €100bn off Greece’s debt.