Germany backs Greece rescue deal

The agreement paves the way for Greece to receive 44 billion euro (£36 billion) in critical rescue loans, without which the country would face bankruptcy and a possible exit from the euro.

It also contains measures including a debt buyback programme and an interest rate cut on loans. Those are aimed at cutting back Greece’s debts and giving it more time to push through economic reforms and trim its budget deficit.

However, it stops short of forgiving outright debt owed to lead creditor Germany and other eurozone governments. Chancellor Angela Merkel’s government has strongly opposed a so-called “haircut” in the run-up to elections next year.

Finance Minister Wolfgang Schaeuble told MPs that the latest deal will keep the pressure on Greece to fulfil its promises.

“We have always pushed the principle of conditionality, and that goes here too,” Mr Schaeuble said.

“Greece will only receive all this relief if it continues to implement its reform measures, one after another.”

Germany’s Parliament has to approve eurozone rescue measures. The bailouts of Greece and others have not been popular in Germany, Europe’s biggest economy, and there has been growing unease in Mrs Merkel’s centre-right coalition.

Still, broad support was assured because two of Germany’s three opposition parties voted largely in favour.

They argued that Greece had to be kept afloat despite reservations about Mrs Merkel’s insistence on a step-by-step and austerity-heavy approach to the debt crisis.

Many economists say that Greece’s debt burden – forecast to reach some 190% of its gross domestic product next year – can only be managed by writing off loans by governments. Germany’s opposition parties also argue that the move will be inevitable sooner or later.

Frank-Walter Steinmeier, a leading member of the main opposition Social Democrats said the deal on the table “is not a sustainable solution for Greece” and argued that the government had merely “bought time” – above all to avoid addressing “unpleasant truths.”

“You know that … everything points toward a haircut in the end, but you are avoiding this truth like the plague,” Mr Steinmeier told Mr Schaeuble. However, he said his party would back the deal because “we cannot leave the Greeks in the lurch.”

The government argues that full-scale debt relief is legally impossible at present and would send the wrong message.

“If you say debt will be forgiven, then people’s readiness to save in order to get further aid is weakened,”

Mr Schaeuble said. “If we want to help Greece along this difficult road, we must advance step by step, and the wrong speculation at the wrong time doesn’t solve the problem.”