Greek debt situation remains ‘precarious,’ Bundesbank’s President says

The situation in debt-ridden Greece remains precarious, the head of Germany’s Bundesbank said Tuesday in a stinging rebuke to the stance taken by the country’s government.

In prepared remarks here, bank President Jens Weidmann gave a passionate defence of the program of fiscal prudence that his country has promoted throughout Europe, even against heavy opposition.

“In Greece, the situation is indeed precarious,” he said, adding that Greece’s debt “was high before the crisis” and is now more than 170% of the country’s economic output. The haircut that creditors took on Greek debt in 2012 “only interrupted the upward trend for a short time,” said Weidmann.

He said it is “crucial” that Greece develop a functional administration “that swings the economy and public finances onto a sustainable path in the future.” Weidmann also said that it was “most important” that there be confidence in a reliable reform path in Greece.

But “the new Greek government has again dashed initial hopes here,” said Weidmann. He noted that last year Greece’s gross domestic product rose for the first time since the start of the crisis and that international institutions had been confident it would perform well again this year.

“It is, however increasingly apparent that the economy is going clearly worse than expected,” he said.

The comments came as Greece and its partners in the eurozone remain at logger heads over the future of the country’s bailout. While Germany and other eurozone countries insist that Greece continue its austerity path to get more bailout funds, the new leftist Greek government has said that cuts in government output have only led to misery for the Greek people.

Weidmann said that there are others, including some in Germany, who agree that austerity is to blame for the country’s economic plight. Weidmann said that while he wouldn’t disagree that some things could have been done better in Greece, the problem hasn’t been trying for a “quick reduction of public deficits, rather much more the far-too-slow approach to structural reforms in many areas.”

Whether it is collecting taxes, fighting corruption or improving the work of public administration, “more appreciable advances should have been possible within five years,” he said.

On Monday, Greece shook up its negotiating team in talks with international creditors, a move expected to reduce the influence of the country’s high-profile finance minister, whose combative style has alienated many European officials. The move came after eurozone finance ministers last week chastised Greek Finance Minister Yanis Varoufakisin Latvia over the lack of progress in Greece’s bailout talks. Latest opinion polls show Greek voters are also growing impatient with their government, raising the pressure on Athens to break the deadlock in the negotiations.

The Wall Street Journal

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