ISTANBUL (Reuters) - The chief of Germany’s Bundesbank pressed Greece on Tuesday to make a credible effort to get back on its feet with tighter public finances and economic reforms, showing no willingness to bend in a standoff with Athens.
In an interview with Reuters, Jens Weidmann gave no quarter in the confrontation between Greece and its euro zone partners, in which Athens is seeking an end to its international bailout program and the tough austerity terms attached.
“I am firmly convinced that Greece can only solve its problems in the long run by making its public finances solid and its economy more competitive,” Weidmann, who is also a member of the European Central Bank Governing Council, said on the sidelines of a meeting of G20 officials in Istanbul.
“But of course, at the end of the day, they need to make credible efforts to improve the situation in a sustainable way so that Greece can get back on its own two feet,” he said.
The ECB last week told Greece’s new leftist-led government, which wants to ditch the 240 billion euro ($272 billion) bailout deal with the ECB, European Commission and International Monetary Fund, that it would no longer accept Greek government bonds as collateral for funding.
That shifted the burden of financing banks to the central bank in Athens and further isolated Greece from its euro zone partners.
Weidmann said that “under no circumstances must the euro zone expose itself to the suspicion it is involved in prohibited monetary financing of states”.
He added that the currency union and its banks were now less vulnerable to “indirect contagion” from Greece than they had been at the height of the euro zone debt crisis.
The Bundesbank chief saw no risk of competitive devaluation and said current exchange rates reflect differences in growth cycles in the major currency zones. U.S. officials at the talks between G20 economy ministers and central bankers in Turkey had warned against seeking trade advantages via exchange rates.
The German central banker reiterated his skepticism on the bond-buying program announced by ECB chief Mario Draghi last month to combat deflation in the euro zone and revive growth.
He said the ECB was venturing into new territory involving “particular risks”, adding: “We should not overstretch monetary policy or give the impression that deep-seated structural problems in the euro zone can be solved by printing money.”
Weidmann was reluctant to see Germany carry out an expansion of public investment, even though its partners are urging it to boost domestic demand to help spark growth in the euro zone.
“Additional investments should not in my view be financed by additional debts, but by adjustments in public budgets,” he said.
Reporting by Gernot Heller; Writing by Stephen Brown; Editing by Paul Carrel and Mark Trevelyan