BRUSSELS (MNI) – Poor communication about the scope of the Greek
government’s efforts to reduce the country’s public budget deficit and
the resulting market volatility provides a textbook case of what not to
do in such situations, European Central Bank Governing Council member
Yves Mersch said in an interview published on Tuesday.

“Unfortunately, the scope of this effort [made by Greece] has
suffered from a communication that I would not call optimal, either from
the Greek side or from the European side,” Mersch told Belgian daily
newspaper L’Echo, according to the text of an interview published on
Tuesday.

Uncertainty about whether Greece would get support from the other
members of the euro currency club and fears that its problems could
spread to other Eurozone countries have pressured the euro and forced
bond spreads of all Eurozone countries with large debts and budget
deficits wider against the benchmark German bund.

“The markets have been disrupted by the declarations at all levels,
without rhyme or reason. It’s an anthology of what not to do,” Mersch
said.

Greece has outlined an austerity plan which commits it to cutting
its budget deficit by 4 percentage points of GDP this year. But the
markets still fear that the country could default on its E273 billion
debt pile, which has sent Greek bond spreads to all-time highs and
forced the country’s Eurozone peers to team up with the International
Monetary Fund to offer loans worth up to E45 billion this year alone.

Mersch said he was surprised by the growing speculation that Greece
wouldn’t be able to honour its debt repayments.

“It has assumed proportions that have nothing to do with the
healthy functioning of the markets,” he said, adding that the ECB “found
the measures taken by Greece convincing and encouraging.”

“The deficit is expected to fall by 30% in 2010 compared to last
year. It’s huge,” Mersch said. “I would like to know other countries
capable of such an effort.”

Earlier this year Mersch was named as one of three candidates to
replace ECB Vice President Lucas Papademos when he steps down mid-year,
but lost out to Portugal’s Vitor Constancio.

“It’s a political process,” Mersch said, when asked by the
newspaper how he felt about it. “I never comment on my moods.”

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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