Schaeuble Opens Door to Greek Debt Relief Tied to Targets

German Finance Minister Wolfgang Schaeuble opened the possibility of further Greek debt relief as he urged the country to stand by its commitments to scale back its debt and overhaul the economy.

On his first visit to Greece since it spawned the financial crisis in 2009, Schaeuble said there are no “shortcuts” to austerity even as he lauded the Greeks’ “determination.” The minister warned against focusing on possible debt relief for the country, though he signaled that Germany would be ready to talk if conditions were met in 2014.

“If Greece has done its implementation and achieved a primary surplus -- then, if necessary, other measures will be negotiated,” Schaeuble told reporters in Athens today. Still, “everybody must do what they’ve promised they’ll do.”

Greece has stumbled in fulfilling austerity targets set by international lenders, falling short on tax-revenue collection and state-owned asset sales as uncertainty over the country’s debt sustainability has grown. Greece’s public debt is expected to peak at 175.6 percent of gross domestic product this year and drop below 120 percent of GDP by 2021, creditors say.

Schaeuble’s comments suggested building on previous relief measures. European finance ministers agreed last November to cut the rates on bailout loans and suspend interest payments for a decade, while giving Greece more time to repay and engineering a Greek bond buyback. He was unyielding on a writedown.

‘Another Program’

Schaeuble said that a writedown on Greek debt held by European bailout funds would “destroy any confidence” and warned against stoking expectations over debt relief.

“Nobody who knows anything about the issue at hand is talking seriously about a further cut for private investors,” he said earlier on German Inforadio before arriving in the Greek capital. “Rather, it’s about the fact that it’s possible that Greece after the end of the current program next year will need another program.”

Greek bonds rallied today, with the yield on 10-year notes falling 15 basis points to 10.24 percent in Athens. Shares rose for a third day, with the Athens Stock Exchange index up 1.7 percent.

Any debt writedown would follow last year’s agreement by private investors to take a 53.5 percent loss on the face value of their Greek bond holdings, the biggest writedown ever. That cut the nation’s debt by about 100 billion euros.

Schaeuble arrived in the Greek capital hours after the recession-wracked country’s lawmakers approved a new round of public job cuts. The German minister promised 100 million euros of loans for Greek companies.

‘Big Steps’

With Chancellor Angela Merkel seeking a third term in Sept. 22 elections, further concessions from Schaeuble to Greece weren’t on the agenda today.

“Greece has taken big steps for reforms in its economic structures,” Schaeuble said. “These reforms are showing the first signs” of success. Still, much work is left, he said.

Authorities banned gatherings and marches in much of central Athens and along the route from the airport. About 4,000 police are on duty during his visit, said a police spokesman, who asked not to be identified in line with policy. The normally bustling Syntagma Square was empty after police cordoned off streets and closed the metro station.

The Greek Parliament passed a bill in a midnight vote that puts 25,000 public employees on notice for possible dismissal, a step demanded by creditors to release the country’s next installment of loans from a 240-billion bailout package.

‘Unprecedented Effort’

“An unprecedented effort is now under way to reconstitute our country’s economy and state,” Finance Minister Yannis Stournaras told lawmakers during the debate. “I’m totally confident that the road we’re following is the right one. The effort is yielding results.”

With his coalition reduced and Greece stuck in its sixth year of recession, Prime Minister Antonis Samaras pushed the job cuts over protests amid record unemployment of 27 percent.

In an attempt to boost an economy that has shrunk by more than a quarter since 2008, Schaeuble’s support will come in the form of loans to small and medium-sized Greek businesses through state-owned lender KfW Group, a German government official told reporters yesterday.

Samaras’s government has said its aim is for creditors to forgive some of the 318 billion euros Greece owes mostly to euro-region taxpayers and the International Monetary Fund.

“The 100-million package is a box of chocolates which is nice, but it does not really help Greece to cope with its debt,” Peter Bofinger, a member of Merkel’s council of economic experts, said today in an interview on Bloomberg Television. “A second debt restructuring is inevitable but definitely it will not take place before the German elections in September.”

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