German Minister Says Greek Deal May Need Changes

The Wall Street Journal

By GEOFFREY T. SMITH

WASHINGTON—Greece's creditors may need to revise the terms of the July 21 agreement on an additional aid package for the country, German Finance Minister Wolfgang Schäuble said Friday.

"It would surprise me if the conditions for a disbursement of the next tranche of aid in September had changed, but not if the conditions for an additional program had changed," Mr. Schäuble said at a press briefing on the sidelines of a series of international meetings.

"However," he added, "I want to wait and see first."

He noted that representatives of the so-called troika—the European Union, European Central Bank and International Monetary Fund—are expected to return to Athens in the near future for further monitoring of Greece's compliance with its bailout deal.

Mr. Schäuble's comments come amid increasing speculation that Greece may need to default and seek much bigger debt relief than that foreseen in July, owing its repeated failures to meet its targets for deficit reduction and economic growth.

Dutch central bank president Klaas Knot had said in an interview earlier Friday in the newspaper Financieele Dagblad that he couldn't rule out a Greek default. His German counterpart Jens Weidmann, attending the same briefing as Mr. Schäuble, declined to comment on Mr. Knot's opinion.

Mr. Knot is the first member of the European Central Bank's governing council to acknowledge publicly the possible need for a Greek default.

Elsewhere in the briefing, Mr. Schäuble and Mr. Weidmann were at pains to play down dire warnings from the International Monetary Fund and from some members of the Group of 20 industrial and developing nations that the world could slide into recession and a new bout of financial-market panic if the euro zone doesn't quickly get its debt crisis under control.

Mr. Schäuble described the slowdown in the world economy as "not so dramatic," while Mr. Weidmann argued that "the economic situation is far better than the sentiment," although he acknowledged that "poor sentiment is starting to spill over into the real economy."

Even so, he argued that calls for a big increase in German government spending to increase demand were out of place, saying that these would have only a minimal effect on Germany's neighbors.

He also warned that fresh deficit spending by Germany could have unintended and counterproductive consequences, by further undermining trust in public finances.

"Financial aid packages can only buy time but can't be a medium-term solution," Mr. Weidmann said.

Mr. Schäuble also stressed that "if we are agreed that a lack of trust in public finances is one of the main causes of the crisis, then the crisis can't be tackled by (amplifying) the cause."

Mr. Weidmann said that Ireland's progress in rebalancing its economy over the last 18 months was proof that austerity-led adjustment programs can work.

The pair also rejected calls from the IMF for a rapid recapitalization Europe's banks.

"Undifferentiated calls for the recapitalization of banks aren't helpful," said Mr. Weidmann, adding that the capital adequacy of Europe's banks is "far better than in 2008."