Greece will need yet more international financial assistance beyond the agreed bailout programs through 2014, a European Central Bank board member said Sunday.
The government in Athens probably won't be able to return to finance its debt on financial markets in 2015 and 2016, thus requiring another assistance program, Joerg Asmussen told German public broadcaster ZDF.
Many of Greece's partners in the 17-nation eurozone loathe granting Greece yet more funds and more long-term assistance, not least Germany's Chancellor Angela Merkel who is heading into an election year.
International creditors have kept debt-ridden Greece afloat since 2010 and have pledged rescue loans worth (EURO)240 billion ($306 billion) through 2014 because the country could no longer refinance its debt on markets. Investors demanded prohibitive interest rates from Greece as they feared the country might default on its debt.
But a much deeper than expected recession and delays in implementing austerity measures and reforms have created a new budget shortfall of some (EURO)30 billion under the current bailout program.
The finance ministers of Greece's eurozone partners, the European Central Bank and the International Monetary Fund will meet on Tuesday to decide how to plug that hole.
"Next week we should settle the financing for the years 2013 and 2014, but you have to be honest and say that we don't really expect the country to have access to markets in 2015 and 2016. That means a follow-up program would be necessary," Asmussen told ZDF.
The creditors initially hoped Greece's debt burden could be reduced to a more sustainable level of 120 percent of its gross domestic product by 2020. But Greece's debt is now forecast to hit 190 percent of GDP next year, leading creditors to propose granting the country two more years to meet the target.
Greece is heading into a sixth consecutive year of recession, which will further deteriorate its debt position measured relative to its economic output. The jobless rate hovers around 25 percent, and youth unemployment has hit 50 percent.
The IMF and many economists, however, fret that an extension and fresh loans alone still won't be enough and that Greece's eurozone creditors might have to forgive some of their debt.
"We cannot help the country with loans alone," Asmussen insisted. "That closes the financing gap but at the same time increases the country's debt."
Germany's influential central bank chief Jens Weidmann, who also sits on the ECB's governing council, said Friday that Greece will need another debt write-off, a so-called haircut, at the end of a long reform path to make its debt sustainable again.
Earlier this year, Greece reached a deal with private creditors to wipe some (EURO)100 billion off the national debt.
But forgiving some of its public debt is an option that is unpalatable to many political leaders across Europe because they oppose the idea of telling voters that billions in taxpayers' money will be lost.
"That is impossible," insisted German Finance Minister Wolfgang Schaeuble in an interview with German broadcaster ARD.
Instead, he again urged Greece to do its homework and push through the budget cuts and structural reforms, saying it has "decided but not yet implemented them."
Schaeuble added that telling Greece now that its creditors will eventually foot the bill would reduce the country's incentive to reform and could therefore be self-defeating because the crisis' underlying causes wouldn't be addressed.
"Greece cannot be spared the path of regaining competitiveness through structural reforms," he added.
When pressed to say how much rescuing Greece will eventually cost German taxpayers, Schaeuble said: "Nobody knows that exactly."
Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz