Debt write-off alone will not save Greece: Bundesbank

31st October 2011, Comments 0 comments

Writing off huge chunks of Greece's debt will not be sufficient on its own to solve Athens' problems, Bundesbank chief and European Central Bank member Jens Weidmann said on Monday.

"A debt 'haircut', or hefty debt write-off, will alleviate Greece's burden of debt, but will not solve its fundamental problems," Weidmann wrote in a commentary for the Handelsblatt business daily.

"It would be disastrous if the impression were to arise that a country can solve its fiscal problems by being bailed out by other states or via debt write-offs, instead of under its own efforts," the Bundesbank chief wrote.

"That would fundamentally destroy confidence in the sustainability of public budgets and in the state as a contractual partner. And the crisis would spread to other countries," he said.

Weidmann has been openly sceptical about key aspects of a complex deal struck by Europe's leaders last week to get Greece's debt under control and solve the snowballing eurozone debt crisis.

The deal aims to tackle the main elements of Europe's crisis by cutting Greek debt, bolstering the banks who may suffer losses as a result, backstopping other countries struggling with debt and improving the bloc's debt rescue fund, the EFSF.

In his guest column for the Handelsblatt daily, Weidmann was cautious about key aspects of the deal, complaining that the "future architecture of monetary union remains unclear."

The burden of financial risks "will be increasingly shared or socialised as a result of the latest measures, whereas oversight remains in the hands of national authorities" instead of a supra-national eurozone authority, he wrote.

"Trust in the stability of the eurozone depends if nothing else on resolving this internal contradiction and the creation of a stabile, institutional framework for monetary union," Weidmann said.

© 2011 AFP

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