March 4, 2015 / 5:13 PM / 3 years ago

Euro zone rebuffs Spanish talk of new Greek bailout

German Chancellor Angela Merkel (L) speaks at a joint news conference with European Commission President Jean-Claude Juncker at the EC headquarters in Brussels March 4, 2015. REUTERS/Yves Herman

BARCELONA/BRUSSELS (Reuters) - Germany and the European Commission slapped down talk of a third financial rescue for Greece as premature, after Spain once again suggested on Wednesday that a new aid package for Athens was almost inevitable.

Athens, which says it does not need a new aid program, averted a new crisis on Wednesday by successfully raising over 1 billion euros in short-term debt as planned but its long-term funding outlook appears increasingly uncertain.

The country has secured a four-month extension to its bailout program until the end of June but remains shut out of debt markets and its new leftwing government has angered euro zone partners with its sharp anti-bailout rhetoric.

For the second time this week, Spanish Economy Minister Luis de Guindos said Athens was unlikely to be able to return to capital markets by June, and that a package of between 30 and 50 billion euros ($33-56 billion) would be needed.

“If Greece does not recover market access by June ... we will have to establish some other type of agreement with Greece, call it a pact, a deal, a program,” de Guindos told a conference in Barcelona. “We have given ourselves these four months to, one, see what the real situation is, to see how Greece has met conditions and to try and establish what happens next (...), which is fundamentally a third rescue.”

He was swiftly rebuffed by German Chancellor Angela Merkel, who said she was focusing on the current bailout.

“I think we now have all our hands full to make this succeed and that’s what I‘m concentrating on,” she said when asked about a third package at a news conference with European Commission President Jean-Claude Juncker in Brussels.

A German finance ministry spokesman also said no discussion of a third Greek aid program was on the agenda for Monday’s Eurogroup meeting, while European Commission chief Juncker agreed with Merkel on keeping the focus on implementing the extension to Greece’s bailout agreed last month.

“It is premature to talk about a third program,” he said. “That is speculation that is best avoided.”

REFORM PLAN WORRIES

The fresh talk of a bailout comes amid growing worries about a more pressing funding crunch for Athens in the coming weeks.

In a temporary respite, Greece raised the 1.138 billion euros it hoped for to refinance maturing short-term debt on Wednesday, but at the highest yield for 11 months.

The sale was being closely watched in a test of Athens’ ability to raise funds after foreign investors began fleeing its T-bill auctions in recent months over rising political tensions.

Athens has already hit a ceiling of 15 billion euros in outstanding T-bills set by EU/IMF lenders, preventing it from using that option to keep its state coffers from running out.

At least part of the state’s cash needs for the month will be met by repo transactions in which pension funds and other state entities sitting on cash lend the money to the country’s debt agency through a short-term repurchase agreement for up to 15 days, debt agency officials have told Reuters.

Greece is hoping EU and IMF lenders will relent and unfreeze some aid to ensure it does not default on its payments. Athens is due to present a six-point reform plan to euro zone finance ministers on Monday to press its case.

But International Monetary Fund chief Christine Lagarde told MSNBC in an interview on Wednesday that the success of Greece’s reform plan would depend on the framework put in place and how the overhaul is implemented.

“They’ve made progress over the years,” Lagarde told MSNBC. “But now clearly number one, they should not lose the benefit of that progress and, two, they really have to reform in-depth the economy so that it works, so that it’s attractive again and so that people want to invest in Greece, so that people want to lend to Greece.”

Tsipras swept to power in January on a pledge to end Greece’s bailout and austerity for good, but has since made key concessions and agreed to step back from popular pledges to reverse austerity measures imposed over the years.

But he has struck a hard anti-austerity line at home. Late on Tuesday, his government submitted a bill to offer free food and electricity to thousands of poverty-stricken Greeks as its first legislative act in parliament, in a symbolic move to address what it calls a “humanitarian crisis”.

Additional reporting by George Georgiopoulos in Athens, Jan Strupczewski in Brussels, Stephen Brown in Berlin, writing by Deepa Babington

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