Leak points to third bailout for Greece

Chancellor Angela Merkel's efforts to contain the euro crisis during her re-election campaign have come under pressure after reports that Greece will need a third bailout early next year.

According to the Bundesbank, in a report leaked to this morning's Der Spiegel magazine, EU governments will "certainly agree a new aid programme for Greece" by early 2014. The German central bank sees the risks associated with the existing aid package as "extremely high", given "hardly satisfying" Greek reform progress to date and continued poor economic performance.

The central bank reportedly criticises as “politically motivated” last month’s release of the latest €5.5 billion aid to Greece by the European Commission, European Central Bank and the International Monetary Fund.

No further assistance
Senior German government officials insist that Greece requires no further assistance at present. Last month German finance minister Wolfgang Schäuble said further debt relief for Greece was "not doable". Philip Rösler, head of the liberal Free Democrats (FDP), Dr Merkel's junior coalition partner, said last week he saw "no need for a further Greek haircut".

Neither the finance ministry nor the Bundesbank was prepared to comment on the Bundesbank report yesterday, but it will be grist to the mill of German bailout sceptics who view Greece as a hopeless economic case that belongs outside the euro zone.

Six weeks before Germany’s federal election, opposition politicians pounced on the report as proof that the Merkel administration is fudging on future bailout costs until after September 22nd.

"There'll be a rude awakening after the election," said Carsten Schneider, finance spokesman for the opposition Social Democrats (SPD). "The chancellor is lying by disputing further aid for Greece, aid that will come with losses for Germany. "

Leading German economists agree that, even if not politically palatable, further financial concessions for Greece will be necessary.

But they remain divided over whether the solution lies in debt forgiveness, or extending the terms of existing loans to Athens.

"One isn't supposed to discuss this politically before the election but it's clear from an economic perspective that Greece's sovereign debt is not sustainable," said Dr Marcel Fratzscher, head of Berlin's DIW economic institute.

“There is a finance gap that needs to be filled, but how? Sooner or later we will have to think about how we can correct this.”