Greece needs more aid: Schaeuble

Dow Jones

German Finance Minister Wolfgang Schaeuble said Greece will need a third bailout, in the bluntest admission by a top German official that the €246 billion ($A363.19 billion) of international aid loans pledged so far won't be enough to save Greece from bankruptcy. 

"There will have to be another program in Greece," Mr. Schaeuble told an election rally of his Christian Democratic Union party near Hamburg, news agencies reported. In the parlance of the euro-zone debt crisis, a "program" means aid loans conditional on economic overhaul Greece would have to enact. 

A spokesman for the German finance ministry said euro-zone finance ministers agreed last year that Greece would get more financing when its current loan package starts to wind down in 2014. 

Mr. Schaeuble has previously warned Germany's parliament and media that European taxpayers might have to lend Greece more money. But his language on the campaign trail was less hedged than before, and could embarrass the German government ahead of Germany's national elections on Sept. 22. 

Other German officials, including Chancellor Angela Merkel, have been taken pains to avoid making an explicit commitment to more money for Greece saying there was no need to discuss the matter now, and that Greece's situation would be reviewed later. 

Some German politicians have argued that promising more loans would reduce pressure on Greece's government to implement tough economic changes. Critics of German policy around Europe say Berlin wants to avoid a domestically unpopular topic until its election is out of the way. 

Greece's initial bailout plan in 2010, under which €73 billion in loans were disbursed, had to be augmented by another package valued at €173 billion in 2012, after Greece's economy sank into a depression and the country's prospects of funding itself on capital markets receded. Thanks to the collapsing economy, even a restructuring of Greek bonds that cut Athens's debt by more than €100 billion wasn't enough to repair the country's solvency. 

The International Monetary Fund, which is lending to Greece together with the euro zone, has grown increasingly impatient with European governments' unwillingness to face Greece''s uncovered financing needs. 

The euro zone's loan disbursements to Greece under its current program are set to end in mid 2014, while the IMF will carry on lending to Greece until 2016. The IMF estimates that Greece faces a financing shortfall of €11.1 billion in the next two years. 

The IMF has warned Europe that it won't release more money for Greece unless Europe sorts out where Greece''s funding will come from after mid-2014. The issue is expected to come to a head this fall, after the German elections. 

Extra loans for Greece aren't the biggest headache German leaders face, however. The thornier problem is that Greece''s debt load has ballooned to a level far beyond what most economists and investors think it can repay. Another loan package--although it would be smaller than the previous one--would merely add to Greek debt. 

Greece's public debt is expected to reach 176 per cent of its total economic output this year, far above the 120 per cent level the IMF considers sustainable. Official projections that show Greek debt falling below 120 per cent by 2022 are based on unspecified "further measures" to help the country, as well as economic-growth projections critics say are unrealistic. 

The IMF--which insists on its loans being repaid in full--has warned that Europe will have to come up with ways to cut Greece's debt. Germany has led Europe's resistance to outright debt forgiveness, saying writing down past loans while extending new loans would break German law. 

At Tuesday's campaign rally, Mr. Schaeuble reiterated Germany's opposition to a debt write-down. Germany has said it is only prepared to back more modest steps, such as a further reduction of the interest Greece pays on its aid loans. Most analysts say that won't be enough, and that a "haircut" to Europe's Greek loans is unavoidable.