Greek bailouts on knife-edge, says Schaüble

GERMAN FINANCE minister Wolfgang Schäuble has warned that the future of EU-International Monetary Fund bailouts to Greece are on a “knife-edge”.

While Ireland was making “considerable” progress in its reform efforts and Portugal was on target, he said last week’s suspension of an EU-IMF inspection in Athens raised doubts about future aid to Greece. His warning came as the Organisation for Economic Co-operation and Development (OECD) forecast the German economy was likely to contract by 1.4 per cent in the fourth quarter.

“There is no room for manoeuvre if Greece cannot deliver the required figures,” said Mr Schäuble, saying the stand-off meant it was “premature” to talk of the second aid package. “Greece is entitled to solidarity, it can be sure of that. But it has to play its part, there’s no getting around that.”

He was speaking in the Bundestag at the first reading of legislation to expand the scope and scale of the European Financial Stability Facility bailout structure.

Opposition politicians welcomed the proposed reforms, but complained they were too little, too late. German hesitation had, they argued, forced the European Central Bank to intervene in markets to buy up sovereign debt.

“The secret communiterisation of debt by destroying the ECB’s ability to act must come to an end – thus the EFSF is the right step,” said Sigmar Gabriel, leader of the opposition Social Democrats. “We need more European influence on the stability, finance, tax and economic policy of individual member states.”

He accused the government of protecting German banks by placing the full blame – and pressure for austerity – on bailed-out states rather than sharing the burden with financial markets.

“In Ireland, Spain and Portugal it was, above all, irresponsible banks and speculators who drove these countries into debt,” he said. “The truth is that the state debt is, in large part, the result of the banking sector’s loss-making socialism.”

The Bundestag debate came as the OECD forecast a cooling-off in German growth later this year. A collapse in export markets could see Europe’s largest economy shrink in the last quarter.