Sun, May 13, 2012 - Page 11 News List

ECB says Greece will be cut if it reneges on deal

STICKING POINT:Jens Weidmann said the European Central Bank should stick to its mandate of preserving price stability, not bailing out eurozone member states

Reuters, FRANKFURT, GERMANY

Greece will not receive any more financial aid if it does not stick to the bailout deal, European Central Bank policymaker and German Bundesbank President Jens Weidmann was quoted as saying yesterday.

He also told the Sueddeutsche Zeitung in an interview that an exit from the eurozone would have a bigger impact on Greece than on the rest of the bloc.

“For Greece the consequences would be much more grave than for the rest of the eurozone,” he said. “I think it is too simple to think Greece’s problems would be solved by leaving the euro area.”

Greece was plunged into turmoil after a general election boosted far-left and far-right groups, stripping mainstream parties that back a painful EU/IMF bailout of their parliamentary majority.

“If Athens does not stand by its word, then that’s a democratic decision. The result is that there is no more basis for further financial aid,” Weidmann said, echoing similar comments from German Minister of Foreign Affairs Guido Westerwelle.

“The donor countries also have to justify themselves toward their own population,” Weidmann said.

The ECB should stick to its mandate of preserving price stability and it would be “dangerous” to change its mandate, he said. French president-elect Francois Hollande had called for more support for growth from the ECB.

Weidmann gave no indication that the ECB would intervene in the bond market again any time soon, but said it was still too early to withdraw the bank’s emergency support measures — a move that should be discussed nonetheless.

The ECB has hardly made use of its bond purchase program since Mario Draghi took over as president in November and has not bought any bonds for eight weeks in a row despite rising refinancing costs in Spain as the country struggles to get its budget under control.

“It is clear that the time for the exit has not come yet, but should not be missed either,” Weidmann said.

“[The bond buying program] is dormant, but can be reactivated. That is the situation, but you know my position,” said Weidmann, who opposes the program because it ventures too far into the arena of state financing — a taboo for the ECB.

Weidmann was also critical of any possible direct aid for euro zone banks from the European rescue fund.

“To communitize risks without states giving up national sovereignty — this undermines the foundation for stability,” he said.

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