By Nick Mann | 2 July 2012

Greece’s economic reform programme has virtually stalled in the past three months and should be the first priority of the new government, according to a member of the executive board of the European Central Bank.

Jörg Asmussen said ‘substantial progress’ had been made last year in reducing Greece’s fiscal deficit and implementing pension reform. But other changes required by the ECB, European Commission and International Monetary Fund had not been followed through due to ‘weak programme ownership’.

Speaking at an event in Athens this morning, he said the adjustment programme was the ‘best option for Greece’. It would enable the country to bring its economy back on track and restore the confidence of financial markets in the smoothest way possible.

‘People, and especially politicians, do not like the notion that there are no alternatives,’ Asmussen said. ‘True enough, there always are alternatives. But they may not be realistic or acceptable ones.

‘Some commentators would like us to believe that exit and devaluation could solve Greece’s problems. I do not wish to go into details of such assessments. Let me only say that much of what is published represents dangerously short-sighted and partial analysis.’

Instead, he called on the Greek authorities to make the case more strongly for reform. ‘The new government should not lose precious time looking to avoid or loosen the programme,’ he said. ‘It should instead focus on how to maximise the effectiveness of reforms. And the key to this is much stronger programme ownership.’

With its majority in Parliament, the new government should identify measures to close the large fiscal gap in 2013/14, make up for delays in tax administration reform and resume the stalled privatisation process, he said.

It should also implement fully labour market reforms and revitalise reforms to liberalise product and services markets, including taking steps to open up ‘closed’ professions.

Asmussen said that together these measures would ‘give the single biggest boost to growth by removing the uncertainty that is paralysing the economy’.

Steps to improve the situation in Greece should be accompanied by ‘rigorous implementation’ of adjustment programmes by the other countries to have received or requested bailout funds – Cyprus, Ireland, Portugal and Spain, while other member states should get ‘ahead of the curve’ on fiscal and structural reform.

He also highlighted the potential benefits of the roadmap to ‘genuine’ European economic and monetary union set out by leaders of the main European Union institutions last week.

‘A commitment to reinforcing EMU in this way, coupled with the measures for Greece and other countries that I have described above, is the only way out of the crisis,’ he said.

‘There is no silver bullet. Those who advocate “once and for all solutions” – be that a banking licence for the ESM, a European transfer system, or the like – are contenting themselves with a superficial analysis.’

He added: ‘The crisis can only be resolved through determined steps on a number of fronts that address its root causes.’