BRUSSELS (MNI) – Greece has no choice but to stick to the tough
fiscal and structural reforms prescribed by the EU and IMF and must
swiftly recapitalise its banking sector, European Central Bank Executive
Board member Joerg Asmussen told the European Parliament in Brussels on
Tuesday.

“There is only one way forward: restoring fiscal sustainability and
competitiveness, which will, in turn, bring back sustained growth,” said
Asmussen. “This requires perseverance: perseverance in carrying out
fiscal consolidation; perseverance in implementing comprehensive
structural reforms; and perseverance in addressing the weaknesses of the
Greek banking sector.”

Although he recognised that the austerity measures being demanded
of Greece would have a “negative impact on growth in the short term,”
Asmussen said it was not the adjustment program which was causing the
economy to contract. He said the current economic depression was an
unavoidable correction of the substantial output gap that had built up
until 2009.

Greece has already made substantial sacrifices and the fiscal
adjustment already achieved has been “remarkable” he said, adding that
“there is still a long way to go.”

Although significant, “the quality of the fiscal adjustment was
mixed” relying too heavily on tax increases and across-the-board
expenditure cuts, Asmussen cautioned.

“It is no secret that the program is subject to exceptionally high
implementation risks,” Asmussen said, warning that the country’s debt
dynamics were “extremely sensitive to implementation slippages.”

“There is a chance the program can work,” he said. “Yes the
medicine is bitter, but the patient can and will recover if he follows
the prescription.”

“I call on Greece’s political class to push through these difficult
reforms by confronting vested interests. Otherwise the critical mass of
structural fiscal reforms necessary to close the medium-term fiscal gap
may not be reached,” he said.

Combating tax evasion was essential both to increase government
revenues and to “improve the social acceptability of the adjustment
program,” Asmussen said.

Measures to boost Greece’s economic competitiveness, including
painful minimum wage cuts in the private sector and removing wage
indexation are “key elements of the strategy for accelerating the
internal devaluation,” said Asmussen.

International Monetary Fund Deputy Director Poul Thomsen, in charge
of the IMF’s programs for Greece, also stressed the importance of this
issue, pointing out that minimum wages in Greece were about 50% higher
than in Portugal and 25% higher than in Spain. “Realigning the minimum
wage with the productive capacity of the economy is key,” Thomsen said.

Greece also needs to take swift action to recapitalise its banking
sector which is “heavily undercapitalised” as a consequence of the
recent debt restructuring, Asmussen said.

Greece’s central bank, the Bank of Greece, is expected to identify
by the end of March, which banks are viable and which should be wound
down, Asmussen said.

–Brussels newsroom: +324-9522-8374; pkoh@marketnews.com

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