More Aid? Greece Funding May Come from EU Budget

Greece needs more help. But where is the aid going to come from? Zoom
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Greece needs more help. But where is the aid going to come from?

Greece needs more aid, German Finance Minister Wolfgang Schäuble said on Tuesday, putting the euro crisis at the forefront of an otherwise languid election campaign. A news report on Wednesday indicates the aid might come from the EU budget.

That Greece will ultimately need more money to stave off insolvency has largely become common knowledge in the halls of power in Brussels. Indeed, SPIEGEL reported ona financing shortfall of up to €11 billion ($14.7 billion) back in early July. The hope in Berlin, though, was that this uncomfortable truth could be somehow avoided until after the September general election in Germany so as not to endanger Chancellor Angela Merkel's bid for a third term.

On Tuesday morning, however, German Finance Minister Wolfgang Schäuble of Merkel's conservative Christian Democratic Union (CDU) party said during a campaign event that Athens would indeed need a third aid package. And, on Wednesday, the Munich-based daily Süddeutsche Zeitung reports that the bailout money may have to come out of the European Union budget for lack of other options.

The paper claims that Brussels is considering tapping EU structural funds so as to avoid the massive political problems -- first and foremost in Berlin -- that a third bailout would stir up. Furthermore, a second debt haircut for Greece has been ruled out by Schäuble and is seen with skepticism elsewhere as well. There is also concern that additional loans would only serve to inflate Greece's already untenable debt load.

"The only option besides debt forgiveness remains a transfer from the EU budget or from the budgets of its partners," the paper cites an unnamed source familiar with the negotiations as saying.

Greece has already benefited from two bailout packages totalling €230 billion, €22 billion of which is still to be paid. The aid money was designed to keep Athens solvent through the end of 2014, at which time it was hoped the country could return to international financial markets. Most experts, however, believe that the timeline is far too optimistic. The third bailout package, however, is likely to be much smaller than the previous two, an unnamed government source told the Süddeutsche.

Greece Enters the Campaign

Schäuble's public comments about the need for additional aid for Greece came as a surprise, especially given Berlin's previous unwillingness to directly confront the issue. The finance minister said on Tuesday that "the public had always been told" about the need for a third bailout package. In the past, however, Schäuble had opted for vague statements, saying in February of 2012, for example, that "one can't entirely rule out" the possibility that Athens will need additional help. When the second bailout package was rubber stamped by Germany's parliament that same month, he said it "likely wasn't the last time that the Bundestag will have to address financial assistance for Greece."

Chancellor Merkel declined on Tuesday to be as forthcoming as Schäuble, telling the daily Ruhr Nachrichten only that "we in the euro zone have always said that we will have to re-evaluate the situation in Greece at the end of 2014 or the beginning of 2015."

The center-left Social Democrats recently sought to turn the topic of aid for Greece into a campaign issue, with chancellor candidate Peer Steinbrück questioning whether Merkel is being honest with German voters. SPD budget expert Carsten Schneider likewise accused Merkel of "breaking a taboo" and said that Schäuble has "let the cat out of the bag."

Not surprisingly, however, the most energetic attack came from Gerhard Schröder, the former chancellor who has hit the campaign trail in support of Steinbrück. He is widely considered to be Germany's best campaigner -- and he didn't disappoint on Tuesday. "You can't win the trust of the electorate with deception and obfuscation," he said. "Only with truth." He then went on to accuse Merkel of promulgating "a great lie" when it comes to the costs associated with the euro crisis.

cgh -- with wire reports

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