The euro area must keep pressure on Greece because changing course could threaten the 19-nation currency bloc more than a possible default by the indebted nation, according to Belgian Finance Minister Johan Van Overtveldt.
“I think what we are doing at the moment is the only option we have,” Van Overtveldt said in an interview Wednesday in Washington ahead of the International Monetary Fund’s spring meetings. “It’s also the best option for the Greek economy.”
The southern European nation is running out of time to offer a list of proposals to the European Commission, the European Central Bank and the IMF before it can receive any additional payments from a 240 billion-euro ($258 billion) bailout that would avert a cash crunch. Yields on Greece’s benchmark 10-year bonds rose to 12.6 percent today, the highest since April 2013.
Greece needs to restructure and shrink its public sector as a condition of any more support, Van Overtveldt said. He rejected easing terms as a way to forestall potential a global financial shock.
“We cannot give into what the Greek government is asking, because if we would do that we would really jeopardize internal discipline of the monetary union,” Van Overtveldt said. Greece faces the same discipline that the bloc needs to impose on its other members, he said.
There is a risk of contagion as a result of a Greece default, “but there will certainly be contagion if we let Greece off the hook,” Van Overtveldt said. “All the other countries will say, ‘well OK, we can also do what we want.’ That is not the solution,” he said.
Greece so far has won little support from its fellow nations in its quest to ease the terms of its rescue program. Finance ministers are gathered in Washington for this week’s IMF talks, to be followed next week by a euro-area gathering in Riga, Latvia, and there is no sign of an imminent deal to unlock another aid tranche.
Talks on resolving Greece’s financial crisis must “intensify” if euro-region finance ministers are to be able to assess the country’s reform commitments when they meet at the end of next week, the European Commission said Thursday. Greece must pay the IMF roughly $1 billion next month.
The short-term efforts to jumpstart the EU economy also risk derailing long-term growth, Van Overtveldt said in remarks at the Belgian embassy in Washington. As a result, countries shouldn’t hide behind the European Central Bank’s quantitative easing program or expect to be saved by European Commission President Jean-Claude Juncker’s investment plan.
Nations might use those programs as an excuse to avoid political fallout from cutting budgets or making structural changes that cause some workers to lose their jobs or reduce their incomes, even if those changes are essential for the long-term outlook, he said.
“My fear for the shorter, medium term for Europe is that two elements might stop that process, and these two elements are QE and the Juncker plan,” Van Overtveldt said.