Bundesbank chief tells Greece either reform, or default

11th June 2011, Comments 0 comments

Germany's new central bank president Jens Weidmann warned debt-laden Greece that international creditors will pull out aid if it fails to pursue painful cuts to tackle its huge deficit as promised.

"Greece's capacity for (debt) payment depends foremost on the attitude of the government and the people," the hawkish Bundesbank chief told Welt am Sonntag daily in an interview to be published on Sunday.

"A lot of aid has been given, but under strict conditions such as massive and swift privatisations. If these commitments are not upheld, there will no longer be a basis for additional aid," he said.

"Greece would have made its own choice and should assume the undeniably dramatic consequence of a default on its payments."

Although a potential Greek default would likely make life hard for eurozone member nations the single currency will survive "and remain stable even in that case".

Despite a landmark 110-billion-euro ($160-billion) bailout agreed last year, Greece's 350-billion-euro debt load has only got heavier as a deeper-than-expected recession in 2010 weighed on government income.

The European Central Bank has until the end of the month to decide a second bailout for Greece but remains divided over the role of the private sector.

Germany wants a second rescue package to include contributions by private creditors, banks and investment funds as the price of Berlin's involvement.

Diplomats say the need is estimated at more than 90 billion euros -- one-third to come from eurozone nations and the IMF, one-third from sell-offs of Greek state assets and the final 30 billion or so from the bank rollovers.

The latter two components are uncertain, and it is also uncertain whether the headline 90 billion figure includes remaining tranches of the existing 110 billion euro package mustered last year.

While expressing sympathy for public resentment in Greece towards the reforms, the current process is "inevitable" for the country to become more competitive and put its financial house back in order, said Weidmann.

© 2011 AFP

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