Bundesbank says Greek euro exit "manageable"

Wed May 23, 2012 8:15am EDT
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BERLIN (Reuters) - The impact of a Greek exit from the euro zone would be substantial but "manageable", Germany's Bundesbank said on Wednesday, raising pressure on Athens to keep its painful economic reforms on track.

In a toughly worded monthly report, the German central bank also said euro zone member states should have a say on further payments of aid to Greece under its 130 billion euro bailout program funded by the IMF and the European Union.

"Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programs," the Bundesbank said.

"This jeopardizes the continued provision of assistance. Greece would have to bear the consequences of such a scenario. The challenges this would create for the euro area and for Germany would be considerable but manageable given prudent crisis management."

Echoing German political leaders, the Bundesbank warned against Europe easing the conditions for Greece to access aid.

"A significant dilution of existing agreements would damage confidence in all euro area agreements and treaties and strongly weaken incentives for national reform," it said.

Greece holds a second election on June 17 after a previous poll produced a parliament split between supporters and opponents of the bailout program, which requires Athens to make deep spending cuts and hike taxes.

Anti-bailout parties are expected to repeat their strong performance, opinion polls show, increasing the risk that Greece will renege on its austerity pledges, default on its debt and possibly leave the single currency.

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Jens Weidmann, President of German Bundesbank, answers reporter's questions during an exclusive interview with Reuters at the Bundesbank headquarters in Frankfurt, April 16, 2012. REUTERS/Kai Pfaffenbach