MARKETS rallied after the Greek parliament fell into line yesterday and voted through the budget laws needed to qualify for a €12bn (£10.8bn) aid tranche.

The result means that Greece has passed the last hurdle standing in the way of the rescue funds that prevent a disorderly default in the next month.

The aid will now be paid out despite the fact that few believe that Athens can deliver the €28bn of cuts it promised to implement yesterday, after the government missed its 2010 deficit target by 0.9 per cent of GDP.

The IMF and EU had claimed that they could not continue to pay for Greece’s bailout if the sovereign did not meet its legal – let alone its actual – obligations.

But the vote merely buys time. The EU is still racing to put together another bailout, likely to be worth over €100bn, to forestall a default in 2012.

As part of the second rescue, German banks have now agreed to participate in a scheme dubbed the “Greek Brady plan”, which will see banks roll over Athens’ debt in return for an eye-watering interest rate.

German banks will agree to reinvest €3.2bn of their maturing Greek debt in new 30-year bonds issued by Athens.

But Greece will not be free to spend all of that money and will have to lend some of it to a special purpose vehicle that will buy a stock of triple-A rated bonds to underwrite banks’ exposure.

Economists estimate the deal will see Athens pay an effective interest rate of 11.2 per cent to banks, making it a mere face-saving measure to get nominal private sector involvement in a new bailout, rather than a restructuring to address Athens’ insolvency.

“If I were Greece, I wouldn’t sign up to this,” says James Nixon, chief European economist at Societe Generale. “The banks limit their downside risk while getting a high interest rate on the debt.”

In effect, banks’ participation in the bailout will be far from the €30bn policymakers have trumpeted. Instead, taxpayers in Europe’s solvent nations will bear the vast majority of the costs.

The euro rallied over a cent against the dollar to $1.45 yesterday, Greek 30-year yields fell to 11.4 per cent, the Eurostoxx 50 closed up 1.64 per cent and the CBOE volatility index fell to its lowest level in a month.