ECB's Weidmann: Greece must keep bailout on track

FRANKFURT Wed Jun 20, 2012 6:46am EDT

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FRANKFURT (Reuters) - Greece must get its reform program back on track if the so-called troika of the European Union, IMF and European Central Bank judges that it has deviated from the plan, Bundesbank President Jens Weidmann was quoted as saying on Wednesday.

Weidmann told Germany's manager magazin in an interview that Sunday's Greek election, which the pro-bailout party New Democracy narrowly won, had not changed the fact that Greece needed to stick to the bailout plan to get further financial aid.

"There is an agreement with Greece, and that counts," Weidmann, one of the most powerful members of ECB's Governing Council, told the magazine.

"If there are discrepancies (from the program), we have to analyze the causes, but first of all it will be up to Greece to demonstrate that there is a way to repair it."

Euro zone officials have begun to accept that Greece's program may be impossible to implement without changes, as the country is already off track and its economy is sliding deeper into recession.

The new government's first mission will be to convince officials from the EU, the ECB and the International Monetary Fund to sign off on the next installment of aid from the bailout.

EU President Jose-Manuel Barroso said on Monday the troika would go to Greece as soon as a government was formed.

ECB Executive Board member Joerg Asmussen said on Monday that giving Greece more time to meet its fiscal targets would mean that the country needed more financial support.

Although the danger of Greece crashing out of the euro zone eased after weekend elections, risks are mounting that Spain will need a full-blown international rescue as its longer-term debt yields hover above 7 percent, a level that has forced other euro countries to seek bailouts.

Spain's treasury minister on Monday urged the central bank to respond firmly to market pressures.

But Weidmann said the key to solving the crisis was in the hands of politicians.

"The Bundesbank's critical stance on the bond purchases is known," Weidmann said, adding that he was also not in favor of issuing joint short-term "eurobills".

France believes that in the long term euro bonds would be the best way for the single currency bloc to protect weaker members from bond market speculation. For now, it is hoping to get an agreement to test the water with short-term paper that might be more acceptable to Germany.

"The key to the solution of the crisis lies in politics and has done for a while," he said, adding that Europe's founding treaty prevented the ECB from radical measures such as huge purchases of government bonds.

(Reporting By Eva Kuehnen and Marc Jones; Editing by Hugh Lawson)

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