German Finance Minister Wolfgang Schaeuble said on Aug. 20 during a campaign stop to help Chancellor Angela Merkel’s re-election bid next month that two bailouts of $325 billion from international lenders to prop up Greece haven’t worked and that a third will be needed.
“There will have to be another program in Greece,” he told an audience, an announcement that comes at a critical time for Merkel who has repeatedly said Greece would be okay. Germany is the biggest contributor to the rescue aid packages for Greece.
Schaeuble has said in the past that international lenders may have to consider a new aid program for Greece after the existing one runs out at the end of 2014, but he has never described it as inevitable until now.
Earlier this month, the German government dismissed a report by Der Spiegel magazine which cited a report that Germany’s central bank, the Bundesbank, said that Greece would need more aid but now Schaeuble has admitted it.
Schaeuble, however, insisted again that Greece would not be allowed to give a so-called “haircut” to the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) and impose losses that would have to be paid for by taxpayers in the other 16 countries of the Eurozone, including Germany.
Greece in 2011 hit private investors, including those in the Diaspora and Cypriot banks that nearly went bankrupt, with 74 percent losses in a desperate bid to write down its debt accumulated by decades of wild overspending and packing public payrolls with hundreds of thousands of needless workers in return for votes.
Schaeuble didnt’ specify how much would be needed but Greek officials reportedly said it would be less than either of the first bailout of $152 billion or the second for $173 billion.
In Athens, a Greek finance ministry official told Reuters a new bailout 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 IMF earlier had said there could be $14 billion hole in the economy that needs to be filled although Prime Minister Antonis Samaras, who has pushed through unpopular austerity measures on the demand of the Troika, ruled out more pay cuts, tax hikes or slashed pensions. The government, however, is going ahead with plans to transfer or fire 40,000 public workers.
Other stopgap possibilities include using leftover funds from a bank bailout program and previously discussed debt support measures, it was reported. In Frankfurt, the ECB said Executive Board member Joerg Asmussen would visit Greece on Wednesday to discuss progress on reforms needed to ensure more bailout money being released from the current package.
Greece got an aid tranche of 5.8 billion euros ($7.75 billion) from the Troika in July and stands to receive another 1 billion euros ($1.3 billion) in October on condition it meets fiscal targets. Troika envoys are due back in September to check the books again.
Merkel, who has backed aid for Greece but only on condition of unrelenting austerity, didn’t comment on what Schaeuble said but told the newspaper Ruhr Nachrichten that Greece will not be allowed another debt write-down however.
“No, I don’t expect a new haircut for Greece. We are moving ahead step for step. There is no question that a lot has to change in Greece. But we also see clear progress and recognize this,” she was quoted as saying.
“In the Eurozone, 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.”
France, a crucial partner for Germany within the EU, has stressed that Greece is heading in the right direction. “It seems to me that this program is on track,” French Finance Minister Pierre Moscovici told Inter radio. “I don’t see an urgent need for a new aid plan for Greece.”