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According to latest Troika (a committee led by the European Commission with the European Central Bank and the International Monetary) estimates, Greece has most probably missed its budget deficit targets for 2011.

As a result, financial officials in the euro zone in charge of Greece’s bailout funds have said that unless Greece makes significant steps to improve its budget plan, it would not receive its next tranche of aid.

To be fair, some steps have already been taken by Greece like increasing the write-down that Greek bondholders must bear. Germany thinks that the changes made are not enough though, so over the weekend, Germany came out with a new proposal to improve Greece’s compliance with the terms of the bailout.

Two things were suggested. The first one is for Greece to give number one priority to servicing its sovereign debt, which must be legally preserved by the Greek Parliament. This would assure both public and private lenders that Greece would honor its commitment and disburse the funds needed to pay for its debt.

Germany also demanded that Greece should allow a budget commission, which would be appointed by the Eurogroup leaders, to monitor and ensure compliance. This commissioner would make sure that budget is controlled and would have the power to veto decisions that run against the targets that had been previously set by the Troika.

The first one seems to be perfectly reasonable. If you’re in debt, then it only makes sense lenders to demand that you pay what you owe before spending on anything else. The second one, however, is… well, a little bit outrageous.

According to Greek Finance Minister Evangelos Venizelos, having the EU directly meddle with Greece’s spending would mean that the country will have to give up its sovereignty.

He was quick to reject the proposal, pointing out that the European Union is built upon equality and respect for national identity. Therefore, Greece should not be made to trade off its national identity for financial aid.

It seems like his tantrum had not been enough to convince Germany to take it easy on the Greek government though. Following Venizelos’ statement, German Economy Minister Philipp Roesler still insisted that external monitoring over the country’s balance sheet is the way to go.

Now that leaves Greece caught between a rock and a hard place. If it doesn’t get the next bailout package, it won’t be able to pay its debts. Making it even worse is that the country has a deadline to meet. It is due to reimburse 14.5 billion EUR worth of bonds on March 20. If you do the math, that’s only 48 days away!

Some say that the spat between the two countries could be a preview of things to come. You see, if Greece doesn’t give in to Germany’s demands, it may default on its debts, leave the euro zone, and go back to its old currency, the drachma. Yikes!

But is risking a Greek exit worth it? The way I see it, appointing a budget commission to Greece won’t really make it more financially-disciplined. Sure, whoever will be assigned to head it would likely be more eager to implement austerity measures.

However, I doubt that the commission would have enough power to change the country’s attitude towards deeply-rooted graft and corruption, unnecessary spending, and wide-spread tax evasion.

What will happen next is anyone’s guess. For now, all we can do is wait with bated breath for the next chapter in the Greece’s debt debacle.