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Germany will back Greek aid but wary of hints at haircut

Germany's Finance Minister Wolfgang Schaeuble arrives at a euro zone finance ministers meeting in Brussels November 26, 2012. REUTERS/Franco
Germany's Finance Minister Wolfgang Schaeuble arrives at a euro zone finance ministers meeting in Brussels November 26, 2012. REUTERS/Franco

By Stephen Brown

BERLIN (Reuters) - German lawmakers are likely to approve the release of Greek aid immediately despite suspicions that talks of a debt write-down have just been delayed until after Germany's 2013 elections.

Chancellor Angela Merkel's center-right coalition and the opposition Social Democrats (SPD) said on Tuesday that the Greek deal agreed overnight would be put to the vote in the Bundestag lower house on Thursday or Friday.

With both sides voicing support, approval is guaranteed but the question will be whether the chancellor can rely on her coalition or needs the votes of the SPD and Greens.

They want to help Greece but will exploit any chance to embarrass Merkel ahead of September 2013's elections, when she will seek a third term in office.

SPD parliamentary leader Frank-Walter Steinmeier said his party would not do anything "that could lead to Greece becoming unable to make its payments in the short term or could force it to leave the euro zone".

But he accused German Finance Minister Wolfgang Schaeuble of pulling the wool over the eyes of the public, which might accept granting already-agreed aid tranches but would not easily support a second write-down of Greek public debt.

"Mr. Schaeuble brags to his own bloc that a debt haircut has been avoided but I tell you it has just been postponed to after the Bundestag elections," he told German TV, adding that euro zone ministers had made "cryptic hints" to this effect.

Greece's international lenders finally reached a deal on a package of measures to reduce Greek debt by 40 billion euros, cutting it to 124 percent of gross domestic product by 2020.

They also committed to taking further steps to lower Greece's debt to "significantly below 110 percent" in 2022, the most explicit recognition so far that some write-off of loans may be necessary from 2016, the point when Greece is forecast to reach a primary budget surplus.

The SPD is not against writing off Greek debt but Steinmeier said Schaeuble should be honest about it. He was also worried that the International Monetary Fund appeared cautious in its support of the Greek debt deal.

Greece will get up to 43.7 billion euros in stages as it fulfills the conditions set by Europe and by the IMF - whose share will only be paid out once a Greek debt buy-back has been carried out. Steinmeier said this added uncertainty.

"DANGEROUS PRECEDENT"

Merkel's conservatives and their Free Democrat (FDP) junior partners include a small band who routinely rebel against euro zone bailouts in the Bundestag. Nowhere near numerous enough to defeat Merkel, they can however cause her embarrassment.

"The chancellor does not technically need her own majority but it is an important signal," said a senior lawmaker from her Christian Democrats (CDU). "However, the number of rebels has not grown in the past six months."

FDP whip Rainer Bruederle backed the Greek package, saying: "There is a danger with all these measures that they set a precedent … But Greece is an extreme special case."

German indignation at continued demands for Greek aid has abated since Merkel's visit to Athens in October, when she was impressed by Prime Minister Antonis Samaras' determination to tackle his country's structural spending problems.

But the conservative media is always quick to tap into the underlying vein of resentment among German taxpayers at having to bail out euro zone countries less frugal than themselves.

"Greeks Get 44 Million Euros," was the headline of the top-selling Bild daily. It asked online readers what they thought of more Greek aid: "NO and once again NO!" responded a reader identifying himself as Frank Mergner.

"Athens can breathe again," said Spiegel magazine, adding that euro zone ministers' ambitious Greek debt-reduction targets "will clearly lead to a debt haircut in the medium term - even if such a step was rejected on Monday".

Gerda Hasselfeldt, parliamentary chief of the CDU's Bavarian sister party, the CSU, said German budget law meant such a step could be ruled out in future too. The CSU has recently softened its tone on Greek aid but would probably block a debt haircut.

(Additional reporting by Andreas Rinke and Gareth Jones; Editing by Anna Willard)

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