THE GERMAN chancellor says the EU may consider extending its loan programme to Greece as leading European economists predicted Athens will need another bailout by 2013.
Greek prime minister George Papandreou urged the German leader to help lower the cost of the EU bailout but, after talks with Angela Merkel, he insisted there was “no question of restructuring of debt”. He favoured EU leaders allowing Athens to buy back Greek sovereign debt on more favourable rates using money borrowed from the euro zone rescue fund.
The European Economic Advisory Group, including leading economists from across the continent, said yesterday that Greece “remains Europe’s problem child” followed by Portugal, with Ireland’s problems “less serious”.
After talks in Berlin, Dr Merkel said the decision on whether to extend the three-year Greek bailout plan would be decided in Brussels on March 25th.
“That is one issue on the table, it’s one issue being discussed,” she said, pointing out that Ireland’s aid package runs seven years as opposed to three for Greece. However, she insisted it could only be agreed as part of a wider euro zone reform package.
On Monday evening, Mr Papandreou urged EU leaders to allow buybacks of Greek debt.
Leading European economists claimed that Greece would be forced to reinstate the drachma unless other euro zone members provided more loans and guarantees before next year. An economist with the advisory group said yesterday that another round of salary cuts of about 30 per cent was the only alternative.
“It’s an unappealing choice,” admitted Prof Jan-Egbert Sturm, president of Zürich’s Centre for Economic Research and head of the advisory group. “There’s no way to avoid certain haircuts but this will not take the whole problem off the table.”
With Greece’s debt mountain soon to reach 160 per cent of gross domestic product, Mr Papandreou was in town to discuss renegotiation of the terms of loans.
Greece continues to haunt Dr Merkel: a year after the original bailout cost her an important state election, a decision on extending the Greek deal comes two days before another state election in Germany, giving annoyed voters another chance to let off steam.
The advisory group of economists claim the scale of Greek’s financial problems is still being underestimated and that it will still not be able to stand independently once the temporary bailout measures expire.
“I see a general opinion now that Greece will not be able to service its debt,” said Prof Hans-Werner Sinn, head of Germany’s IFO research institute and a fellow member of the advisory group.
“It’s doubtful whether Greece can manage a debt ratio of more than 150 per cent,” said Thomas Mirow, head of the European Bank for Reconstruction and Development. “The markets have been pricing in a restructuring for a long time. So that the country gets its problems in hand, the quota should be dropped to 100 per cent.”