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Greece May Need Third Rescue in June If Market Closed, EU Says

Monday, 02 Mar 2015 12:37 PM

Greece could need a third bailout deal when its current program expires in June because markets may still not be prepared to lend to its government, even with a euro-area credit line, European Commission Vice President Valdis Dombrovskis said.

Prime Minister Alexis Tsipras, elected in January, said Friday his government won't need another bailout. Greece has received pledges of 240 billion euros ($269 billion) in aid from its two rescue packages, and Tsipras's government must meet creditor demands to tap remaining funds.

Speculation over whether Greece would need a third bailout has been swirling for a year or more -- German Finance Minister Wolfgang Schaeuble said in August 2013 that a new aid program would be needed to help Greece meet its debt obligations -- and estimates of the country's needs have ranged from 12 billion to 50 billion euros.

In a Monday interview in Riga, Dombrovskis said Tsipras's government will have to meet the requirements of its current program in coming weeks, and then see what market conditions will dictate.

"Greece may need an additional arrangement after this program expires," said Dombrovskis, whose portfolio includes the euro and monetary union. He said Tsipras faces different conditions from his predecessor, Antonis Samaras, and may not have the same range of options.

"With the previous government, we were discussing how Greece would move back to the market financing with the help of a precautionary arrangement or enhanced-conditions credit line," Dombrovksis said. "Now this scenario, however, seems less likely, given recent financial instability."

Tsipras won time to sell his policy program to creditors, while trying to keep his party at home on board, when euro-area finance ministers signed off on a bailout extension last month. This week, the Greek parliament takes up a slate of draft laws aimed at satisfying election pledges and paving the way for an aid review by the European Commission, the European Central Bank and the International Monetary Fund.

Syriza's rise to power has renewed tensions between the euro area's most-indebted state and its counterparts. Spain and Portugal, which also received bailouts during the height of the debt crisis, have complained to the European Commission that Tsipras is blaming them for undermining his negotiations.

Spanish Economy Minister Luis de Guindos, whose government will face the Syriza-allied Podemos party in elections later this year, said Monday that a third rescue program is being negotiated and it will be in the range of 30 billion euros to 50 billion euros. In comments provided by his ministry, he said Greece won't leave the currency bloc and has no alternative to "European solidarity."

Dombrovskis said Greece's future aid needs are linked to its performance in the current review, which is due to wrap up in April.

"If we see that the negotiations, as regards the completion of the current program, are moving forward successfully and actually Greece is sticking with its commitments and implementing the necessary reforms, I think it will also be easier to negotiate the next possible package," Dombrovskis said. "It also will be easier for Greece to return to market financing."

In the meantime, Greece has sought short-term bill financing from its banks which in turn are relying on emergency liquidity from the European Central Bank. Greek banks' reliance on euro system liquidity is now close to 100 billion euros, compared with about 45 billion euros at the end of November, Eurobank Ergasias CEO Fokion Karavias said Monday in a Bloomberg television interview with Guy Johnson and Francine Lacqua.

"The ECB requested Greek banks not to increase their T- bill exposure, but we can roll over outstanding balances and we will do this," Karavias said.

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Greece could need a third bailout deal when its current program expires in June because markets may still not be prepared to lend to its government, even with a euro-area credit line, European Commission Vice President Valdis Dombrovskis said.
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Monday, 02 Mar 2015 12:37 PM
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