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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Comments (2)
dareconomics wrote:
Greece does not require a 3rd bailout, because it has already had three. The next will be the fourth.

The first bailout occurred in May of 2010, and everyone believed that the Greek problem was solved. Within a year, this aid package proved to be short, so the troika approved a new bailout plan that most economists outside the official halls of central banks, governments and the IMF deemed insufficient from the get-go. This plan, the second bailout, was eventually implemented in March of 2012.

By the summer, it was obvious that Greece was in need of more aid. ELA approved by the ECB kept the Greeks afloat until a third bailout package could be arranged in November of 2012. As you can see for yourself above, the same wildly optimistic projections of revenues from GDP growth and privatization doomed this plan from the start, but the troika’s goal here was not to save Greece but to keep it quiet until after German elections. They failed, and I wrote

The 3rd Greek bailout was not designed to place Greek finances on a sustainable path; rather, the troika was primarily concerned with kicking the can down the road past German elections. Once Angie was safely seated in the Chancellor’s throne, she could return to the Bundestag with a request for more German money to throw down the Hellenic Hole. (Greece Requires 4th Bailout | DARECONOMICS.)

The fourth bailout will occur sometime in the winter of 2013/2014. Additional German money will be politically covered with a deposit tax à la Cyprus. Anyone who is maintaining funds in a Greek bank deserves whatever happens to him.

Full post with charts, images and links:

http://dareconomics.wordpress.com/2013/08/20/around-the-globe-08-20-2013/ ‎

Aug 20, 2013 1:44pm EDT  --  Report as abuse
MisterEasee wrote:
As someone who has made loans to deadbeats to help them, my advise is: “stop feeding their habit, and give them nothing”! ONE hit to eurozone, and the next country will act better.

Aug 20, 2013 6:13pm EDT  --  Report as abuse
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