UPDATE 3-German minister's Greek aid comments spark pre-election backlash

Tue Aug 20, 2013 5:30pm EDT

By Gernot Heller

AHRENSBURG, Germany Aug 20 (Reuters) - German Finance Minister Wolfgang Schaeuble said on Tuesday for the first time that Greece will need another bailout, triggering a storm of protest from opposition parties five weeks before an election in Europe's biggest economy.

While analysts have long predicted Greece will require more aid, albeit on a smaller scale than previous bailouts totalling about 240 billion euros ($320 billion), Chancellor Angela Merkel has tried to keep Greece out of her campaign for re-election to avoid angering German voters who fear they will foot the bill.

Just hours before Schaeuble spoke, Merkel was quoted in a regional newspaper as saying there was no point in discussing additional aid to Greece before the end of next year, when its second rescue package will expire.

But at a campaign event in northern Germany, her outspoken minister departed from that line, breaking what had been seen as an election campaign taboo.

"There will have to be another programme in Greece," Schaeuble said.

A Greek finance ministry official told Reuters a new bailout would involve sums far smaller than previous rescues and would focus on plugging an expected funding shortfall over 2014-2016.

"Greece and its lenders are examining several ways to plug any funding gap that Greece will face over the next few years," the official said on condition of anonymity.

The aid programme announced by Schaeuble will be at least partly financed via the EU budget, German newspaper Sueddeutsche Zeitung cited unnamed sources as saying in an advance extract of an article due to be published on Wednesday.

The newspaper said discussions were underway about making extra money from the EU's structural funds available to Athens, which could use it to boost the economy and free up national budgetary resources to pay off debt.

The newspaper cited government sources in Berlin as saying that the third aid programme would be much smaller than the first two and the conditions would also be less strict as Greece has already set a lot of the necessary changes in motion.

The International Monetary Fund last month estimated Greece's funding gap for 2014-2015 at 10.9 billion euros.

Athens hopes to cover part of that gap by returning to bond markets, which it could do as early as 2014 with a "small-size" bond issue, finance minister Yannis Stournaras told Reuters last month. But market observers increasingly doubt the situation has improved enough to allow a bond market return next year.

Schaeuble has said in the past that international lenders may have to consider a new aid programme for Greece after the existing one runs out at the end of 2014.

But he has never described this as inevitable, as he appeared to do on Tuesday.

His comments came shortly after the European Central Bank said Executive Board member Joerg Asmussen, a German who used to work for Schaeuble, would be heading to Athens on Wednesday to discuss progress on reforms needed to ensure the country receives more bailout money.

Greece received an aid tranche of 5.8 billion euros from its international lenders in July. It stands to receive another 1 billion euros in October, subject to implementation of further reforms.

Inspectors from the "troika" - the European Commission, European Central Bank and IMF - will return to Athens in the autumn to find out whether the government needs to find further savings to meet its 2015-2016 budget targets.

As a prelude, Asmussen will meet Central Bank Governor George Provopoulos, Finance Minister Yannis Stournaras and George Zanias, chairman of Greece's biggest lender, National Bank, on his trip this week, Greek sources told Reuters.

"TELL THE TRUTH"

Schaeuble's comments played into the hands of the opposition, who throughout the election campaign have accused Merkel of failing to tell voters the truth about Greece.

"I have made clear that saving Europe and keeping the continent together comes at a cost, also for us Germans," Merkel's Social Democrat (SPD) challenger Peer Steinbrueck said after Schaeuble spoke. "Now it's time that Frau Merkel tells people the truth."

Greens leader Juergen Trittin said Schaeuble had exposed Merkel's "deceit" and criticised the chancellor for advocating austerity policies in Greece that had failed to reduce its debt load.

Progress on reform in recession-stricken Greece has been patchy and there have been several reports that it may need another aid package or more debt relief.

As Europe's biggest economy, Germany takes the biggest share of the bailouts, which are unpopular with taxpayers.

Merkel looks on track to win a third term next month, in part because voters applaud the hard line she has taken with bailed-out countries like Greece.

But any indication she is covering up the risks of another rescue could hurt her at a time when she is battling to win the votes needed to keep her centre-right coalition together.

"Greece is a dangerous subject. It is not clever to bring it up again just as there was a general feeling of calm," said Emnid pollster Klaus-Peter Schoeppner.

In the interview with the Ruhr Nachrichten newspaper, Merkel was asked about additional aid for Athens and responded: "In the euro zone, we always said that we would evaluate the Greek situation again at the end of 2014 or in early 2015. It makes sense to stick to this timeline."

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