Bundesbank board member Andreas Dombret said Greece is far behind in implementing its reform program and shouldn’t rely on international creditors like the European Union to solve its problems.
“Politicians and the EU are willing to assist Greece, but Greece must, first and foremost, help itself,” Dombret said in a speech in New York today. “Announcing and passing laws is not enough if the administration and the general public undermine them. It is now the task of the troika to decide impartially whether Greece meets the conditions for further assistance.”
Euro-area governments are pressing Greece, which faces a sixth year of recession, to make deeper spending cuts to unlock a 31-billion euro ($40 billion) aid payout in November. Luxembourg Prime Minister Jean-Claude Juncker urged Greek lawmakers yesterday to solve remaining issues before finance ministers gather in Brussels on Nov. 12.
While Greece is “way behind the program goals due to the standstill in consolidation and basic structural reforms,” other countries are making progress, Dombret said. “My favorite example is Ireland, which shows that trust can be regained if the agreed measures are adopted and implemented.”
Ireland is preparing to exit its bailout program at the end of 2013, three years after concerns about the country’s ability to cope with its bank debt and budget deficit pushed it into seeking aid. Stefan Gerlach, deputy governor of the Irish central bank, said on Sept. 28 that the government won’t have any problem with refinancing itself in financial markets.
Dombret said the proposed banking union in Europe may be a “major step” toward breaking the link between banks and sovereigns. Creditors should be “first in line” in bearing bank losses to protect government finances so that taxpayers’ money is only the last resort, he said.
“With regard to spillovers from sovereigns to banks, sovereign bonds need to be adequately risk-weighted to strengthen market signals and improve resilience in case of market turmoil,” he said. “In addition, there should be caps on banks’ maximum exposure to individual sovereign creditors, as is already the case with private creditors.”