Debt-laden Greece can pull out of its downward spiral but needs a «stable» political situation to overcome the crisis, the head of the European Central Bank has said.
Greece is expected to hold general elections in late April or early May after negotiating a massive deal for additional rescue loans from eurozone countries and the International Monetary Fund and a debt restructuring with private bond holders.
“The Greeks have passed very many important reforms in Parliament,» ECB President Mario Draghi told Germany’s Bild daily in an interview published Friday. «If they also implement these, the country has a chance to get itself out of the current downward spiral.”
In exchange for additional support, Greece agreed to impose harsh austerity measures, slashing the minimum wage, pensions and benefits — including deep cuts in the health service. Amid widespread discontent, it is unclear what might emerge from the elections.
Draghi said that «to overcome the crisis, Greece needs a stable political situation.» He didn’t specify what exactly that would entail.
He dismissed the idea of Greece leaving the 17-nation euro, saying that apart from anything else, «as a matter of principle, the ECB does not give any thought to a country leaving the euro area.”
“Leaving the euro area and having the possibility to devalue their own currency would not improve anything,» Draghi said.
“It would not remove the need for reform,» he added. «In fact, the consequences of leaving the euro area would be high inflation and instability — and, for the foreseeable future, nobody would lend Greece the money it needed.”
Draghi said it wasn’t possible to say whether there was a limit to support for Greece.
“We will have to see how things develop in the country,» he said.
“Generally speaking, the fact remains that if we want to protect taxpayers’ money, the euro area cannot be turned into a transfer union, where one or two countries provide the money, the rest spend, and the whole thing is financed by joint eurobonds. That cannot happen.”
That was a nod to the German government’s fierce resistance to jointly issued government bonds, which could lower struggling countries’ borrowing costs but increase those of Germany. Instead, Berlin has pushed hard for a new European budget-discipline pact.
“A community must be founded on trust — trust that shared rules will be adhered to, for example, with regard to budgetary discipline,» Draghi told Bild.
“That is why the new fiscal pact among euro area states is the right thing and why eurobonds would be premature.”
In the interview, which was conducted Monday and published in two parts starting Thursday, Draghi said of the wider eurozone crisis that «the worst is over, but there are also still risks.”
“It is now up to the governments,» he said. «They must make the euro area crisis-proof in a sustainable manner.» [AP]