Bundesbank's Weidmann: It's in interest of Greek government to do reforms

By Reuters

Jan 25, 2015 06:13 PM EST

Bundesbank President Jens Weidmann said Greece, where an anti-bailout party looks set to win a snap election, would continue to need aid and would only get this by sticking to agreements, adding he hoped the new government would not make promises the country could not afford.

"I believe it's also in the interest of the Greek government to do what is necessary to tackle the structural problems there," Weidmann said in an interview with German public broadcaster ARD. He singled out administration, public finances and theeconomy as being particularly in need of reform.

"I hope the new government won't call into question what is expected and what has already been achieved," he said.

Greece's leftwing Syriza looked set for a comfortable victory over the ruling conservatives in Sunday's election, an exit poll showed, with a chance of winning a full majority to face down international creditors and roll back years of painful austerity measures.

Asked about the possibility of a third haircut - or debt restructuring - for Greece, Weidmann said: "For me it's decisive that Greek public finances are stable in the long term and as long as that's not the case, a haircut would only grant a short pause for breath."

Syriza leader Alexis Tsipras told Reuters in December that if elected, his party would negotiate debt relief with international lenders without taking unilateral steps.

The European Central Bank announced on Thursday it was launching a government bond-buying programme to pump hundreds of billions of new money into a sagging euro zone economy and as it tries to push euro zone annual inflation back up to its target of just below two percent.

Weidmann has strongly criticised the scheme and told German newspaper Welt am Sonntag he voted against it.

On ARD Weidmann said the risks involved with buying state debt in the euro zone were "very grave so the threshold for purchasing government bonds in the currency union should be higher."

He reiterated his view that low inflation was boosting consumers' purchasing power and boosting company profits, adding this raised the question whether monetary policy needed to kick into action too.

"In any case I don't see a dangerous downward spiral of wages and prices that is characterised by consumer reticence and an investment freeze," he said.

He said the ECB had largely used up its monetary policy options and it was therefore important that politicians in crisis countries implemented reforms while the European Commission had a duty not to further soften budget rules.

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