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ECB, Germany Play Down Talk of Third Greek Bailout

European Central Bank (ECB) executive board member Joerg Asmussen (R) addresses reporters next to Greece's Finance Minister Yannis Stournaras during a news conference in Athens, Aug. 21, 2013.
European Central Bank (ECB) executive board member Joerg Asmussen (R) addresses reporters next to Greece's Finance Minister Yannis Stournaras during a news conference in Athens, Aug. 21, 2013.
Reuters
— The European Central Bank joined Germany on Wednesday in playing down talk of a third bailout package for Greece, but reaffirmed the eurozone would help the country trim debt as long as it stuck to its latest aid program.

Speaking in Athens a day after German Finance Minister Wolfgang Schaeuble bluntly predicted Greece would need a new bailout, ECB executive board member Joerg Asmussen said he had not discussed the issue at talks with senior Greek officials.

He referred instead to the eurozone's pledge last year to support Greece until it can tap markets again, provided it sticks to its current bailout obligations and posts a budget surplus before interest payments.

“This is a decision taken in November last year, it is public knowledge, and there's nothing new and there's nothing to add,” he said. “If we look at how things unfold, we will know not before spring next year if the country has reached a primary surplus on an annual basis.”

In Berlin, German officials sought to distance themselves from Schaeuble's comments, which broke a pre-election taboo by describing a new rescue as inevitable.

Greece has already been bailed out twice since 2010 with 240 billion euros worth of agreements coordinated by the ECB, European Union and International Monetary Fund.

It had been expected to seek some form of additional debt relief sooner or later to bring its massive debt down to a manageable level, but the openness of Schaeuble's statement that there would need to be a third bailout for Athens came as a surprise.

Germany's finance ministry said the eurozone would take a fresh look at Greece's aid program in mid-2014 and that Berlin was not aware of any discussions on how to structure a new rescue package.

“We have reached the middle of the current program. It is August 2013, we will certainly have to look in mid-2014 at where we are, what the conditions are and whether the program has been fulfilled,” said spokesman Martin Kotthaus.

Schaeuble's boss, Chancellor Angela Merkel, in her first comments on Greece since his comments, stuck to her line that it was too early to discuss another package, or to speculate how large it could be.

“I can't say today what kind of sums might be necessary,” she told broadcaster Sat.1. “Only in the middle of next year will we be able to say.”

A Greek finance ministry official speaking to Reuters on condition of anonymity said any further help for Greece would aim to cover its funding shortfall in 2014-2016 and would be much smaller than the previous aid packages, given the country's limited funding needs for the period.

The International Monetary Fund has put Greece's uncovered funding needs for 2014-2015 at 10.9 billion euros.

At least part of that stems from national European central banks refusing to roll over some Greek bonds they hold, as well as a potential shortfalls in tax and privatization revenues and Greece being unlikely to fully return to bond markets next year.

Such estimates are revised frequently and are highly sensitive to budget and economic growth projections, which Greece's lenders are expected to update in the fall.

Greek 'debt colony'

Schaeuble's comments were immediately seized on by Greece's anti-bailout opposition, who fear that any new aid will be accompanied with yet another round of painful austerity.

“Schaeuble threatens with new help,” leftist newspaper Efimerida ton Syntakton deadpanned on its front page, next to a stern-looking image of Schaeuble with tightly pursed lips.

“They admit they failed and now they want to save us again,” the newspaper said.

Panos Skourletis, spokesman for the Syriza opposition party, said “Contrary to recent talks about an eventual debt writedown, we are going down the same old road, the same recipe, which inflates debt and turns Greece into a debt colony.”

Syriza shocked established parties in the last two elections by riding a wave of public anger at austerity to become the country's second largest party.

Greek officials have suggested any funding shortfall could be covered with a combination of new rescue loans, or debt support measures like extending maturities, cutting interest rates on loans, as already envisaged under a eurozone decision on Greece last year. One official suggested bilateral loans Athens got under its first bailout could also be rolled over.

European Union Monetary Affairs Commissioner Olli Rehn was cited on Wednesday as saying that while new rescue loans in a third bailout were possible, they were not the only option to help Greece and pointed to the option of extending maturities.

The aid program Schaeuble is expecting will be at least partly financed via the EU budget, German newspaper Sueddeutsche Zeitung cited unnamed sources as saying.

Greece's international lenders - the EU, ECB, and IMF, known as the troika - are due to return to Athens in the autumn to reexamine whether Greece's debt is on sustainable footing and whether the government needs to find further savings to meet its 2015-2016 budget targets.

Progress on reform in the recession-stricken country has been patchy. Tax revenues continue to lag targets and the Greek economy has struggled to show signs of recovery after shrinking by about a quarter from its peak six years ago, mainly as a result of austerity policies imposed under two bailouts.

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