By David Barwick
MADRID (MNI) – Fiscally troubled Greece would do well to exhibit
more urgency about availing itself of the contingency loans put at its
disposal by the Eurozone and the International Monetary Fund, European
Central Bank Governing Council member Nout Wellink told Market News
International.
In an interview conducted Friday on the margins of the informal
Ecofin meeting here, the head of the Dutch National Bank said he thought
it was unlikely that another member of the Eurozone would face a
situation similar to Greece’s or that the Greek government would fail to
repay the loans if they were disbursed.
“I think every now and then they should show a stronger sense of
urgency” about securing aid, Wellink said.
With regard to the letter written by Greece last week requesting
preparatory talks on the aid plan with European and IMF officials,
Wellink said “it would be a good thing to come with a program at a
certain moment, and in the context of such a program you need an
activation of the [aid] mechanism.”
Pressed on whether he meant Greece should seek actual activation of
the mechanism, Wellink referred back to his own earlier comment: “What I
said is the Greeks should show a greater sense of urgency, and then you
can interpret that the way you want to interpret it.”
Wellink’s Governing Council colleague Ewald Nowotny made similar
comments late last week, saying “what is necessary is really to activate
the measures foreseen.” If Greece does that, Nowotny said, “I’m sure
they will have an impact on the markets.”
However, Greek bond spreads widened sharply this morning on news
that the preparatory talks, to have been held in Athens today, were
postponed due to disrupted air traffic in Europe. The spread between
Greek 10-year bonds and their German Bund counterparts was last up 32
basis points on the day at +463bps — as new 11-year high.
Wellink strongly downplayed the notion of a contagion from Greece
to other fiscally-troubled EMU states, such as Spain and Portugal.
“There is a big difference between Greece and other Eurozone member
countries,” he said. “For many years in a row Greece didn’t play the
game according to the rules…These other countries may have their own
weaknesses, admittedly, but they are in a completely different
position.”
Wellink noted that the contributions by other EMU states to the aid
plan for Greece would only cause them direct budgetary problems if
Greece failed to repay its debts — an outcome that is “highly
unlikely.” He added: “We all know from past experience that the Fund
always gets its money back.”
Asked about fears that the IMF would play a dominant role in the
aid package, Wellink said the conditions on Greece would be formulated
in very close collaboration among all parties. The ECB “is very much
involved in the analytical part of the story, giving advice and so
forth,” he said.
Queried on whether the ECB would also help establish the
conditions, he responded, “I think [it would be involved] in coming up
with conditions as well, but at the end of the day it’s not the ECB that
decides on these conditions. That should be done in close cooperation
between the Fund and the EU.”
Wellink continued: “Admittedly, this is a delicate issue, because
the IMF has its own rules of the game and Greece is part of Europe. But
the Fund should accept that this is a complicated situation in which we
have to cooperate closely.”
The conditions will likely reflect Greece’s need for “very
substantial budgetary reform and also structural reforms,” Wellink
predicted. The budgetary program “will be undoubtedly a very tough
program.”
Greece’s own austerity program in conjunction with the EU Stability
and Growth Pact is not enough, Wellink suggested. “What Greece did is
the first step, is an important step, is a very substantial step, but
what we need is a longer perspective of what Greece is going to do. They
have to clarify what they have in mind for the longer term, the second
year, the third year,” he said.
It is after all “relatively easy to make predictions as to the
reduction of the budget deficit that is needed, but there is a
difference between what you say is needed and how you’re going to do
it,” he explained.
To be sure, the Greeks have “made quite a lot of progress for the
first year…but they have to fill in the longer term, and that is
extremely important,” he added.
Asked if he was confident about the Greek budget plan, Wellink
reiterated his expectation that it would prove “a very tough program
because the first step is always the easiest step, and if you have to
continue with severe additional measures…every additional measure
becomes more difficult for the Greek public to swallow. But they have to
find a solution obviously — that is quite clear.”
The ECB’s decision to maintain the lower rating requirement for
refi-eligible collateral “was a well-balanced measure,” Wellink said.
“We didn’t want to create additional uncertainty in the markets because
markets were uncertain as to what would happen if we went back to our
previous regime, but we did it in such a way that we did not increase
the risks to the system.”
However, he squarely rejected the notion that the ECB could
specifically do Greece another favor by maintaining interest rates low,
noting that the ECB’s mandate is “quite clear.”
The fact that Greece’s consistent flouting of the monetary union
rules cannot be punished by expulsion from EMU is not a flaw in the
system, he asserted. “We have formulated a longer-term goal for Europe
and every now and then something goes wrong, but you should try and
solve that problem and that’s what we are going to do.”
Though to the short-term observer it may appear that the Eurozone
tends to take two steps forward and one back, “if you look from a
certain distance then you see there is progress,” Wellink argued.
The Greek crisis “will end up further strengthening the rules of
the game” and specifically the Stability Pact, he affirmed.
The other countries should have applied “much more pressure [on
Greece] at a much earlier stage”, he said. He called for a “more
aggressive” preventive arm of the Stability Pact.
–Frankfurt Newsroom, +49-69-720-142; dbarwick@marketnews.com
[TOPICS: M$$CR$,MGX$$$,MT$$$$,M$$EC$,MX$$$$,M$X$$$,M$$FX$]
