BUSINESS

Schaeuble says pressure on Greece must remain ahead of German election

By Patrick Donahue

German Finance Minister Wolfgang Schaeuble said Europe must keep up pressure on Greece to stand by its austerity pledges as he rejected the notion that the upcoming election has put debt-crisis management on hold.

Greece’s progress will continue to be monitored after euro- area governments last week approved the latest bailout transfer to keep the government in Athens funded through the Sept. 22 election in Germany. German lawmakers have until noon today to raise objections to the latest Greek tranche.

“The pressure remains, so this has nothing to do with the election schedule,” Schaeuble told Deutschlandfunk radio in an interview yesterday. “They’re far from being over the mountain,” he said.

As European leaders scramble to plug the hole in Greece’s budget, Germany’s political factions are maneuvering into position ahead of a vote eight weeks away as Chancellor Angela Merkel seeks a third term in office. Her challenger for the office, Social Democratic Peer Steinbrueck, declined to rule out a possible “grand” coalition with Merkel’s bloc.

With most polls showing Merkel’s Christian Democratic-led bloc about 15 percentage points ahead of the SPD, they project a narrow chance she could continue her current partnership with the market-liberal Free Democratic Party. Falling short of that, the most likely combination would be reprising the grand coalition that Merkel led in her first term from 2005 to 2009.

Such a government would change the crisis-resolution calculus, putting Merkel in partnership with a party that has been more open to sovereign bailouts in Europe.

Steinbrueck, who was finance minister in the grand coalition, said the scenario couldn’t be ruled out even though he wouldn’t be a member of a government with Merkel.

“In a parliamentary democracy you can’t make a fundamental decision that rules out coalitions with other democratic parties automatically,” Steinbrueck told Welt am Sonntag newspaper in an interview. Still, a “very, very great majority” within the SPD doesn’t want a coalition with Merkel.

An Emnid poll published yesterday showed Merkel’s CDU and its CSU Bavarian sister party maintaining their position with 40 percent support, while the SPD held at 25 percent.

The Merkel-allied FDP lost one point to 5 percent, the threshold for entering parliament, while the Green Party stayed at 13 percent, giving neither main party enough to form a government with its favored coalition partner.

Erik Nielsen, chief global economist at Unicredit Bank in London, said the election will “spell the end to the slowdown in a number of European initiatives” and undermine questions among some about Germany’s committment to the currency zone.

The next government “will be as pro-European, and pro euro, if not more so, than the present one,” Nielsen said in an e-mailed note. “The overall message to Europe and the world from the German population on Sept. 22 will be that Germany is as committed to the eurozone as ever. It is time for the remaining euro-sceptics outside the continent to get to grips with this reality.”

The German election has become entwined with the fates of indebted states in the 17-member euro area, with Merkel promising voters that Germany won’t write off any of the loans made to Greece since the debt crisis broke out in 2010.

Schaeuble, in a separate interview with the Bild am Sonntag, ruled out another writedown for Greek debt even as he ensured that euro governments will stand by the country.

“Greece will certainly be helped beyond 2014 as much as is needed, as long as the nation fulfills its obligations,” he told the newspaper.

As euro-region governments on July 26 cleared the release of 2.5 billion euros ($3.3 billion) for Greece, a European Union official identified a 3.8 billion-euro gap expected in 2014. Options for plugging that include tapping unused funds earmarked for banks, having Greece venture back into the short-term bond market, or having putting in more money, the official said.

A review mission to Greece by the European Commission, European Central Bank and International Monetary Fund -- the so- called troika -- will tackle the question in September. An ultimate decision will be put off until April 2014, when the European statistics office certifies whether Greece had a primary surplus in 2013.

Unless the budget committee of Germany’s lower house of parliament raises objections, the 2.5 billion-euro loan from the European Financial Stability Facility will go forward.

[Bloomberg]

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