Greece will need another haircut, says Bundesbank chief

Friday 16 November 2012 18.27
Jens Weidmann warns about relying too much on central banks
Jens Weidmann warns about relying too much on central banks

The head of Germany's central bank has said that Greece will eventually need another debt write-off.

But Jens Weidmann said the country can not be offered one now and must first work though a long list of reforms.

Weidmann told a gathering of business leaders in Berlin that Greece's finances are an exception within the 17-nation euro zone because its "debt is not sustainable."

He said Greece's government must implement further reforms and get its budget under control.

But he noted that granting the country more debt relief - a so-called haircut - now would reduce pressure on Athens and weaken its ambition to make the necessary changes.

Weidmann said "a debt haircut does not solve Greece's problems." But he added: "It will be necessary at the end to regain access to capital markets."

The Bundesbank chief also warned against relying too heavily on central banks to combat Europe's debt crisis.

Weidmann said that Europe's leaders should not shy away from political decisions and instead rely on help from central bankers.

He has been a vocal opponent of the European Central Bank's plan to buy unlimited amounts of short-term bonds of troubled euro countries, saying it overstretches the bank's mandate.

He said that politically legitimised institutions, like the eurozone's rescue fund, should play the pivotal role.

Otherwise, he warned that ever more important decisions will be taken "by unelected people who are not subject to parliamentary control." Weidmann said the rescue fund "is in place and can be used."