Germany could back more aid for Greece

By Juergen Baetz

Associated Press

Published: Thursday, May 12 2011 9:15 a.m. MDT

Greek conservative opposition leader Antonis Samaras presents his party's platform on the economy during a conference in central Athens on Thursday, May 12, 2011.Samaras said he backed tax cuts to restart the shrinking economy, and warned he would not back the Socialist government's economic policies. Despite a euro 110 billion international rescue loan package approved last year, Greece remains in the grip of an acute financial crisis and harsh austerity.

Petros Giannakouris, Associated Press

BERLIN — Germany has signaled it could back more help for struggling Greece, the clearest official admission yet that the international bailout and austerity plan agreed last year to restore confidence in the country is failing.

German Finance Minister Wolfgang Schaeuble said Thursday in parliament that his government could back more aid if Greece continues to find it impossible to raise funds by selling bonds.

Schaeuble insisted that any further assistance must be tied to tough terms, arguing it is up to the Greeks to solve their underlying budgetary and structural problems: "We won't approve additional measures without clear conditions."

Germany is Europe's biggest economy and is a central, though sometimes reluctant, player in resolving the debt crisis. Its economy is growing strongly due to strong exports and painful labor market reforms made years ago, and many people there resent having to bail out Greece's free-spending ways from the past decade.

EU officials have indicated more help will be needed to help Greece honor its debts beyond 2013, when the current bailout program expires.

They have not said publicly how much extra money Greece might need, but hinted that the eurozone's 17 finance ministers are likely to make a broad announcement on potential new measures after their meeting in Brussels on Monday.

The final details, however, will have to wait for a report by debt inspectors in Athens.

The International Monetary Fund, the European Central Bank and the European Commission are currently evaluating Greece's progress on the terms of its €110 billion ($158 billion) bailout that saved it from bankruptcy. They will decide on whether to release the next round of funds and their report, due next month, will estimate Greece's funding shortfall next year.

"If it appears that Greece cannot return to the financial markets within the time frame assumed last year, then we have to talk about what additional measures Greece, first and foremost, can take, what can be done in addition to solve the problem," Schaueble said.

Greece's crisis is the result of years of inept governance, widespread corruption and waste that created bloated budget deficits and a public debt amounting to about 150 percent of economic output.

Despite drastic spending cuts already implemented — with reductions to pensions and salaries accompanied by an increase in taxes and retirement ages — investors still don't trust Greece to repay all its debts. As a result, its borrowing rates are prohibitively high, freezing it out of bond markets.

If that situation continues, Greece would need more help — it is supposed to raise some €27 billion ($39 billion) on capital markets next year, but that seems unlikely.

Greece badly needs economic growth to support its debt reduction drive. Official data released Thursday, however, showed its economic situation was worsening.

Unemployment rose to 15.9 percent in February, from 15.1 percent in January, according to the national statistical authority. In February last year, unemployment was at 12.1 percent.

The IMF warned meanwhile that the rest of Europe needed to strengthen its banks to avoid the troubles in Greece — and debt stricken Ireland and Portugal — from spreading through the financial system. Many banks elsewhere in Europe hold bonds from the stricken countries, and have financial cushions considered too thin to absorb big losses on those bonds

A top IMF official said Greece should be able to pay its debts with the help of reforms and the current bailout, but left the door open to changing that assessment after the review due in June.

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