03 February 2014

Germany preparing third financial rescue for Greece

The new loan, outlined in a five-page position paper by Berlin's finance ministry, would be worth between €10 billion to €20 billion, according to the German weekly Der Spiegel, which leaked the document. Such an amount would chime with comments made by the German finance minister, Wolfgang Schäuble, who, in a separate interview with Wirtschaftswoche, insisted that any additional aid required by Athens would be "far smaller" than the €240 billion it had received so far. The Guardian sees this as a calibrated move aimed at preparing public opinion.

The renewed help follows revelations of talks between Schäuble and leading EU figures over how to deal with Greece, which despite receiving the biggest bailout in global financial history, continues to remain the weakest link in the eurozone. The talks, reported by Wall Street Journal (subscription required) to have taken place on the sidelines of a Eurogroup meeting of eurozone finance ministers last week, are believed to have focused on the need to cover an impending shortfall in the country's financing and the reluctance Athens is displaying to enforce long overdue structural reforms. The lack of progress is at the root of stalled talks between Greece and its "troika" of creditors, the International Monetary Fund (IMF), European Central Bank and EU.

Speaking to Wirtschaftswoche, German Finance Minister Wolfgang Schäuble did not rule out a third aid package for Greece and said that it may be a "low risk" option, while acknowledging that the domestic situation remains difficult in Greece. However, German officials appeared to give out conflicting messages about the country’s position on Greece, with officials from both countries playing down reports about a new Greek loan package in the coming months, but expressing support for Athens’s reform efforts. German Vice-Chancellor Sigmar Gabriel suggested that Greece would be more suited to support from the World Bank than the International Monetary Fund, reports Kathimerini.

Senior sources at the Greek Finance Ministry also reacted to the German press reports, noting that a funding gap in the Greek financial programme was created due to decisions taken by eurozone officials. “We are open to any discussion about a package on the condition that there will be no more fiscal measures, only structural measures”, one official said.

Greece faces a financing gap of up to €15 billion over the next two years, according to foreign creditors, which have kept its economy afloat since May 2010. As the EU's powerhouse, Berlin has bankrolled most of the emergency loans to date. But a German finance ministry spokesman, quoted in Welt, echoed similar statements by Schäuble, denying "categorically" that a further restructuring of Greece's staggering debt – this time by public creditors – was on the cards. 

Most of the debt overhang now haunting the country belongs to European governments and at 176 per cent of GDP – up from 120 per cent of national output at the start of the crisis – is not only a barrier to investment but widely regarded as being at the root of its economic woes. "They are missing the point: Greece does not need a third bailout, it needs debt restructuring", said the shadow development minister and economics professor, Giorgos Stathakis. "Even in the IMF, logical people agree there is no way we can have any more fiscal adjustment when the whole thing has reached its limits", he said. "There is simply no room for further cuts and further taxes and that is what they are going to ask for."

The IMF has been increasingly at odds with Germany and other lenders over the need to write off Greece's debt. Confidential records, documenting minutes of meetings held to discuss the country's first bailout, reveal the level of discord among Member States over the feasibility of the rescue programme. The IMF said last year that without additional debt relief by eurozone governments, Greece's debt burden could smother the country's economy.