Greek bailout awaits German vote

The euro strengthened as the German stock market fell on news that Greece received its second bailout package worth €130 billion funded by the IMF and EU.

However, the bailout package still needs to be approved by parliaments in Germany, Finland and Holland while private bondholders are expected to take a ‘voluntary’ 50% cut on Greek debt.

German finance minister Wolfgang Schaeuble said this morning he was confident the Bundestag parliament would pass the vote.

‘I expect all three parliaments to pass the bailout,’ Metzler Asset Management's chief economist Edgar Walk told Citywire Global on Tuesday.

‘I don’t expect we will have any problems in the Bundestag,’ Walk said referring to a public opinion poll taken by the German newspaper Bild, that saw 50% in favour of a Greek bailout, against 10% who were undecided and 40% against.

The German DAX fell in early morning trading on Tuesday as the Euro leaders announced the bailout plan.

The fall in the index was due to the market pricing in the deal over the past few days, said Walk, when the DAX had risen 4.5% from a low on Thursday to a high on Monday.

‘Marshall Plan needed’

Christine Lagarde (pictured below), managing director of the IMF, welcomed the Euro Group’s ‘proposed understandings’ in a press statement published on Tuesday morning.

‘As soon as the prior actions agreed with the Greek authorities are implemented and adequate financial contribution from the private sector is secured, I intend to make a recommendation to our executive board regarding IMF financing to support a program’, she said.

It is not yet clear how much the IMF will contribute will contribute to the package.

‘Greece needs a form of Marshall Plan from Europe,’ said Metzler's Walk on the question of whether he would expect further Greek bailouts.

‘We need a transfer of fresh money that will rebuild the economy and not just the idea of debt-forgiveness,’ he said.

‘Greece may be heading for a continual recession but I don’t think we can expect a Marshall Plan to from countries in Europe – or from China,’ he added. ‘That is why we will have to continue to live with risk.’

A recent paper released by the IMF warned that Greek debt would amount to 120% of GDP in 2020 in a ‘worst case scenario’ based on the country’s fundamental growth.

London’s FTSE, the Paris CAC and Frankfurt’s DAX index all opened lower this morning.