ECB official deflects talk of more aid for Greece

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Associated Press

Posted on August 21, 2013 at 5:33 AM

Updated Wednesday, Aug 21 at 11:30 AM

ATHENS, Greece (AP) — A top European Central Bank official on Wednesday deflected the growing speculation that Greece will require a new financial aid deal, saying it won't be clear for months whether Athens would even qualify for more assistance.

Joerg Asmussen, one of the ECB's six executive board members, said the easing of Greece's recession in the April-June quarter provided "the first signs of stabilization" and that there had been progress in public finances.

"I have huge respect for what has happened and I would suggest (Greece continues) with the reforms that have started ... (and shows) perseverance, even if it is difficult to do so," he said after a meeting in Athens with Greek Finance Minister Yannis Stournaras.

But he said his talks had not touched on potential future financial aid or debt relief. A day earlier, Germany finance minister Wolfgang Schaeuble had roused talk of another rescue program for Greece, saying the country will need one — his clearest statement yet on the issue.

The International Monetary Fund, a key rescue loan provider, predicted last month that the bailout program would fall short of Greece's needs by 4.4 billion euros ($5.84 billion) next year and by 6.5 billion euros ($8.63 billion) in 2015. Describing the expected shortfall as a "test of European support," the IMF said that finance ministers from the 17 euro countries have already begun discussions on plugging financing gaps.

Schaeuble did not specify what form the new aid should take, but ruled out a write-down on Greece's public debt, which is now mainly bailout loans owed to other European governments.

Asmussen said Greece would have to first achieve a primary surplus — budget income, excluding interest payments on debt — and fully comply with its austerity commitments.

"We will not know before Spring next year if the country has reached a primary surplus" on an annual basis, he said. "I've seen the data for the first seven months that were encouraging, but one has to continue on this route."

German Chancellor Angela Merkel said it would only be clear "in the middle of next year" what sums might be necessary for a new rescue package.

In a preview of an interview being screened late Wednesday, Germany's SAT.1 television said Merkel still expects no debt writedown for Greece.

Opinions in the rest of Europe are divided on the matter. France's finance minister, Pierre Moscovici, said he saw no need for a new aid deal.

"It seems to me that this program is on track, that Greece is making enormous efforts to right itself ... I myself don't see the urgent need for a new program for Greece," Moscovici told France Inter radio on Tuesday.

International debt inspectors from the ECB, IMF and European Commission, collectively known as the troika, are returning to Athens in September to review progress on reforms. Their findings will help clarify whether Greece will be able to support itself once the bailout program ends.

"In that context we shall also assess a possible extension of the Greek program and its funding," Olli Rehn, the top monetary official at the European Commission, was quoted as saying by the Finnish daily Helsingin Sanomat.

According to the paper, Rehn said in an email that one option would be to extend the maturity of Greece's loans.

Greece first began receiving rescue loans from other countries in the euro currency union and from the IMF in May 2010, when the dire state of the country's public finances left it unable to borrow on international bond markets.

To qualify for the loans, Greece pushed through repeated rounds of austerity measures, slashing state spending, cutting state sector salaries and pensions and increasing taxes across the board.

The measures led to widespread and often violent protests, and have seen thousands of businesses shut down. Unemployment has reached 27 percent, a record, as the country struggles through a sixth year of recession.

But the initial bailout program was plagued by delays and missed targets, and it soon became apparent that more support was needed. Athens began receiving funds from a second bailout early last year, and also saw a debt reduction program under which private sector holders of Greek government bonds agreed to write off more than half the value of their bond holdings.

So far, Greece's creditors have committed 240 billion euros ($320 billion) in loans. The second bailout is due to end in mid-2014, although the IMF is scheduled to continue giving its loans until 2016.

Greece's finances have improved somewhat of late, with the government posting a small primary surplus for the first seven months of this year.

____

Geir Moulson in Berlin and Lori Hinnant in Paris.

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