Is Greece in need of another bailout?
It is starting to look like it after Olli Rehn, the European Union’s Economic and Monetary Commissioner indicated it is not being ruled out.
Rehn quickly added that a bailout for Greece is not the only option to keep the aid program alive. Renegotiating the repayment schedule on existing loans is another option.
Germany’s Finance Minister, Wolfgang Schaeuble, announced that Greece will need a bailout. A surprising thing to say just weeks before the German general elections. Using German taxpayers’ money to bail other countries out is not likely to attract many votes.
According to Finnish Newspaper, the Helsingin Sanomat, the IMF (International Monetary Fund), The European Commission and the European Central Bank will review Greece’s aid program during the autumn.
The Helsingin Sanomat quoted Mr Rehn, who said “Then we will also review Greece’s programme’s possible continuation and financing. The debt sustainability can be improved, for instance, by extending the loan periods.”
Leaving things till the fall might be too hopeful. Joerg Asmussen, a European Central Bank board member is currently in Athens discussing fiscal reforms with Greece’s prime minister and finance minister.
Greece has already received two bailouts totaling approximately €240 billion ($321 billion). The loans were granted on condition that the country restructured its economy and cut down on spending.
Sigmar Gabriel, head of Germany’s SPD party, demanded that Chancellor Angela Merkel “come clean” on whether more German money is going to be used to bail out Greece.
Chancellor Merkel said there is no point in discussing aid to Greece until the end of next year when the second package expires.
In an interview with Reuters, an official from the Greek ministry of finance said if a new bailout is agreed, it would involved significantly smaller sums.
On condition of anonymity, the official said to Reuters “Greece and its lenders are examining several ways to plug any funding gap that Greece will face over the next few years.”
Nils Pratley, of The Guardian, wrote that all a small loan package will do is fill a hole for a while and delay an inevitable fourth package.
“A better approach would see Greece’s lenders take more pain up-front – get the debt down to manageable levels and hope to see economic growth reduce the burden further. Is Germany, after the election, prepared to support that idea? If it’s not, we’ll be talking about a fresh eurozone crisis by the end of the year.”
IMF becoming impatient with European governments
The IMF, which together with European agencies and governments has lent money to Greece, is becoming increasingly impatient with European governments.
The IMF accuses European governments of refusing to face Greece’s dire financing requirements.
According to the IMF, Greece is facing a €11.1 billion ($14.85 billion) financing shortfall during the next 24 months.
The current arrangement is that the loans coming from the Eurozone will continue being disbursed until the end of 2014. After that the IMF will take over until 2016.
Unless the European governments and agencies can sort out where Greece’s funding will come from after the middle of 2014, the IMF says it will not release any money for Greece. This impasse is expected to come to the surface more evidently after the German elections.
In March 2013, the IMF approved a €28 billion ($37.4 billion) loan package for Greece.
Like the USA receiving two bailouts worth $9.6 trillion
The population of the United States is approximately 30 times that of Greece (316m vs. 10.8m). The Greek bailouts, to have an idea of their vast size, would be the equivalent of $9,630 billion ($321 million times 30), or $9.6 trillion, nearly two-thirds of its annual GDP (gross domestic product) if the USA were bailed out.