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UPDATE 1-Germany dismisses report that Buba expects more Greek aid
August 12, 2013 / 12:10 PM / 4 years ago

UPDATE 1-Germany dismisses report that Buba expects more Greek aid

By Stephen Brown

BERLIN, Aug 12 (Reuters) - The German government dismissed on Monday a report that Greece will need a new aid package by early next year, saying Athens is making headway with reforms, as illustrated by some improved economic data from the recession-mired euro zone state.

Germany’s finance ministry said it had no knowledge of an internal Bundesbank document quoted by Der Spiegel saying Europe “will certainly agree a new aid programme for Greece” and that the existing aid package carried “extremely high” risks.

“The latest troika report finds that Greece is making good progress with its reforms. As you know, the current programme runs until 2014, so I find it difficult to speculate now about what will happen in 2014,” said spokesman Martin Kotthaus.

Der Spiegel said the approval last month of a 5.8 billion euro ($7.7 billion) aid tranche was “politically motivated”.

This comes at an awkward moment for Chancellor Angela Merkel as she campaigns for a third term in September’s election. She has repeatedly played down suggestions that Greece may require extra aid or debt relief, despite conflicting views from experts including the International Monetary Fund.

The opposition Social Democrats (SPD), who face an uphill task trying to unseat the popular chancellor, accused Merkel of lying to German voters, who are sceptical about whether their country should again pay the lion’s share of any new bailout.

But the head of Merkel’s pro-business coalition partners, Philipp Roesler of the Free Democrats (FDP), gave his backing to the government’s view that there is no need to discuss anything on top of the current loan package expiring at the end of 2014.

“Greece is absolutely going in the right direction,” said Roesler, German economy minister and deputy chancellor, whose party often takes a tougher line than Merkel’s own conservatives on the conditions for bailouts for euro zone states like Greece.

“I would like to see what would happen in Germany if we were asked to do that many reforms,” said Roesler, adding that at the moment additional aid for Greece was “not necessary”.

New data showed the Greek economy shrank at an annual rate of 4.6 percent in the second quarter. This was a tad better than forecast and led some economists to predict the recession would decelerate in the fourth quarter. {ID:nL6N0GD1EJ]

Greece also beat its fiscal targets in the first seven months, largely thanks to aid from euro zone central banks and European Union funds.

But London-based Capital Economics said a research note that “a strong and sustained expansion is still a long way off and another major debt restructuring is still likely to be needed”.

Political risk analyst Carsten Nickel at Teneo said however that the Spiegel report was unlikely to put much pressure on Merkel ahead of the election. The SPD should avoid at all costs making a major campaign issue out of the euro crisis, where polls show German voters have faith in Merkel’s leadership.

But Nickel said Greece could create problems after the election if, as many analysts believe, Merkel fails to revive her centre-right alliance with the FDP and has to repeat her 2005-2009 ‘grand coalition’ with the SPD.

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