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Is Germany in 'cloud cuckoo land' over Greek debt?

Athens
Adri Aderval | Flickr | Getty Images
Athens

Greece's latest output data showed the country's economy contracted at a slower rate than the previous quarter, exceeding analyst estimates.

Flash estimates for Greece's second quarter gross domestic product (GDP) on Monday showed a contraction of 4.6 percent year-on-year in the second quarter of 2013, less than the 5.0 percent forecast by a Reuters poll of economists. The economy contracted by 5.6 percent in the first quarter.

(Read More: Trouble brewing: Greek tragedy mark two?)

The figures may offer some hope that Greece is on the road to recovery, but will not be enough to quell rumors that the country will need another round of aid.

The issue came to the fore once again on Monday. In a document written for the German finance ministry and the IMF and seen by German magazine Der Spiegel, the German central bank said Greece would need further financial aid by the start of 2014. It added that the risks to its current bailout remained "extremely high."

Aware of the potential unpopularity of granting Greece more money, however, German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have repeatedly denied that Greece would get more aid.

Germany is still in "cloud cuckoo land" if it thinks the country won't need more bailout aid or debt relief, analysts told CNBC.

Monday's data follows figures which showed unemployment jumped 0.6 percent in May to a new high of 27.6 percent.

(Read More: Trouble brewing: Greek tragedy mark two?)

"Economic stabilization appears to remain some way off in the euro area's most troubled nation and the case for further debt relief – particularly on behalf of the euro area creditor governments – continues to strengthen," Chris Scicluna, head of European research at Daiwa Capital Markets, said.

The Bundesbank officials added that they thought there would be a new rescue package for Greece shortly after the German elections in September. They criticized the latest tranche of Greek aid from international lenders, calling it "politically motivated."

The Bundesbank declined to comment on the report.

(Read more: Euro zone grants multibillion euro lifeline for Greece)

Micheal Hewson, senior market analyst at CMC Markets, told CNBC that the report could have hardly been more badly timed for Merkel, given the election next month.

"If Germans really believe that Greece won't need another bailout then they are kidding themselves and living in cloud cuckoo land, whatever their leaders publicly say."

(Read more: Germany's aid offer to Greece is too little, too late: German MEP)

He added that the report raised the political temperature in Berlin as opposition leaders accuse Angela Merkel of lying about the risks of a new bailout for the beleaguered country.

"Merkel has consistently downplayed the likelihood of debt relief or more bailouts, saying that no taxpayer money has been lost. While that may be true anyone with any aptitude for basic mathematics must know that the numbers simply don't add up in the long term."

Barclays' chief euro zone economist, Antonio Garcia Pascual, said the latest growth figures from Greece could signal a return to some "equilibrium" for the economy towards the end of the year.

"Keep in mind that it's still a lower pace of contraction rather than a recovery, the recovery is likely to come more next year so it's less of negative growth rates. That comes from stronger exports, domestic demand is negative but increasingly less negative."

"Also something that is very relevant for Greece is the fiscal accounts which, for the second half of the year, is expected to print its first primary surplus- that is very important for debt renegotiation issues."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

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