Schaeuble Sees New Greek Bailout Risk as German Polls Loom

  • Comments to newspaper signal departure on IMF participation
  • Tough enforcement would also be needed under any new deal

Finance Minister Wolfgang Schaeuble raised the prospect of renegotiating Greece’s bailout just as Germany heads toward elections, saying he’d have to seek lawmakers’ backing for a new program if the International Monetary Fund bows out.

“A solution within the European currency system” would be an alternative if the IMF “decided for some reason to stop participating,” Schaeuble said in an interview with Sueddeutsche Zeitung. That would require new bailout negotiations with Greece, and “the Europeans would have to be sharply better at enforcing the agreed conditions.” 

The comments signal a departure from Germany’s position that IMF participation is a precondition for German backing to the lifeline keeping Greece afloat since 2010. Chancellor Angela Merkel’s government has been at loggerheads with the Washington-based fund over the extent of relief measures needed to bring Greek debt back to a sustainable path.

The second review of the latest Greek bailout is almost one year behind schedule amid disagreements between the government in Athens and auditors representing the IMF, the European Commission, the European Central Bank and the European Stability Mechanism over belt-tightening measures, collective bargaining and energy-market reform.

Continuing the program without IMF contribution in loans could break the deadlock between the country’s creditors, a Greek government official said in an e-mail to reporters. Greece welcomes the idea that Europe has its own institutions to tackle the issue, provided initiatives and decisions are taken quickly, the official said, asking not to be named in line with policy.

Choosing Poison

Even as Alexis Tsipras’s government sides with the EU Commission in resisting calls from the IMF for deeper pension cuts and a reduction of the income-tax-free threshold, Schaeuble warned that a potential program backed by the euro area won’t be a walk in the park.

“If we were to do the program ourselves, the enforceability of the accords would have to be decisively strengthened by other means,” he said in the interview published Friday. “We could task the ESM rescue fund with that. But that would be something different and would have to be approved by the Bundestag.”

While Merkel’s coalition consistently backed bailouts for euro-area countries since 2010, seeking an election-year vote on Greece in the Bundestag, or lower house, would be a political distraction. Merkel already faces a backlash from the anti-immigration Alternative for Germany party, founded in 2013 to protest bailouts and the euro.

On Board

Germany wants the IMF to “stay on board” German Finance Ministry spokesman Juerg Weissgerber said Friday. Any IMF decision not to participate would require a new program and Bundestag involvement, Weissgerber told reporters in Berlin.

Greece is the first euro-area country to seek emergency loans from its peers and the only one still reliant on ESM backing, amid repeated delays in every review of the conditions attached to its economic support.

“IMF participation remains the basis for the ESM program for Greece for us,” Eckhardt Rehberg, a budget committee member from Merkel’s parliamentary caucus, said in e-mailed comments to Bloomberg. “I sincerely hope that the smoldering conflict will soon be resolved and that the IMF will participate in the program as announced.”

Bond Yields

Greek government bond yields are almost twice as high as the equivalent notes of Cyprus, the only other country in the currency bloc excluded from the ECB’s asset-purchase program. As Greece seeks to regain market access before its current bailout expires next year, the ECB is refusing to buy its bonds amid doubts about the sustainability of Greek debt.

Negotiations for a new ESM-backed program could prove controversial for both Tsipras, whose popularity has plunged, and Merkel as she seeks a fourth term in national elections expected in September. Transferring oversight of Greek finances to the Luxembourg-based ESM could also trigger a reaction in Brussels, after Schaeuble repeatedly rebuffed calls from the European Commission for a more expansionary fiscal policy.

“We know that the IMF has reconfirmed its intention to recommend to its executive board a new financing arrangement for Greece,” Alexander Winterstein, spokesman for the European Commission said Friday. “And there is no reason for me now to speculate on hypothetical scenarios.”

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