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Bundesbank chief: Greece risks losing financial aid if it breaches loan agreements

Greek political leaders are to meet tomorrow for a final attempt at forming a coalition.

Image: AP Photo/Dimitri Messinis/PA

THE HEAD OF Germany’s central bank is warning that there would be no basis for further financial aid to keep Greece afloat if the country backs off agreements with international creditors.

The comments by Bundesbank chief Jens Weidmann, who is also a member of the European Central Bank’s governing council, came as Greek politicians, deeply divided over the value of austerity and reform measures that creditors demanded in exchange for rescue loans, flounder in efforts to form a new government.

“If Athens doesn’t stand by its word, that is a democratic decision — but that means the basis for further financial aid falls away,” Weidmann was quoted Saturday as telling the German daily Sueddeutsche Zeitung. “The donor countries also have to justify themselves to their population.”

Bailing out countries such as Greece has been unpopular in Germany and other prosperous nations.

Greek politicians are to meet tomorrow in a last-ditch effort to form a coalition government following recent elections. However, if these talks go the way of recent negotiations, new elections are likely to take place next month in an effort to resolve the political deadlock.

Concern is building that Athens could renege on its bailout agreement – or that it could even leave the eurozone.

Asked about a possible Greek exit from the 17-nation euro, Weidmann said that “the consequences for Greece would be more serious than for the rest of the Eurozone.”

“I think it is too simplistic to assume that the problems in Greece would be solved if the country leaves the Eurozone,” he added. “An exit from the currency union would be historically unprecedented and linked with great uncertainty.”

Since last Sunday’s indecisive Greek election, German officials have insisted on the need for Athens to stick to its existing course, which has become hugely unpopular with Greek voters.

“There is no easy way for Greece,” Finance Minister Wolfgang Schaeuble was quoted as saying in an interview with the Welt am Sonntag newspaper.

“We have gone to the limits of what the financial markets will believe from us — there is no better solution,” he added. “Now Greece must show whether it has the strength to put together the necessary majorities for that. I can only hope that those responsible in Greece quickly understand that.”

Schaeuble said that “if the Greeks have an idea for what more we can do to encourage growth, we can always talk about it and consider that.” But he insisted that the main task is to make Greece competitive, and that means carrying through the already-agreed reform program — “otherwise, the country has no prospects.”

Schaeuble already has suggested that the eurozone could deal with an abrupt exit by Greece.

“We cannot force any country to remain in the euro,” he was quoted as saying. “Of course we do not want Greece to leave — that is very clear. But … we would be a funny government if we did not prepare for all conceivable cases in order to be able to master them — even situations that would not be easy for Europe.”

Additional reporting by Susan Ryan

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