German central bank chief presses for eurozone economic reforms

(COPENHAGEN) - The German central bank urged eurozone partners Monday to match Germany's economic success with market-based reforms as Berlin was pressed to back a European Union (EU) plan to help Greece resolve its debt crisis.

Germany's experience with economic reforms following its reunification "has shown that a market-based correction even of severe domestic structural problems is possible if the necessary reforms are addressed," Bundesbank chief Axel Weber said in Copenhagen.

"The effort and inconvenience associated with those adjustments will pay off as they lead to strengthened economic conditions in the individual economies and the euro area as a whole," Weber added in a speech at the Copehangen Business School.

His comments came amid a debate over how to resolve the Greek crisis and ensure convergence between eurozone economies, with EU leaders urging Germany to focus on domestic consumption rather than exports to underpin growth.

German leaders have resisted calls for it to rely less on its strong export position, saying efforts to remain competitive with the rest of the world should not be abandoned if other eurozone economies fall behind.

Weber, a candidate to replace Jean-Claude Trichet as head of the European Central Bank next year, agreed German companies should focus more on their domestic market but stressed that "political coordination of this process ... is neither necessary nor helpful."

Germany improved its competitive position through labour market reforms, fiscal consolidation, relocation of industrial production, research and innovation, Weber said.

Such measures were sometimes painful but strengthened the economy, "the core lesson that can be drawn from Germany's experience," he added.

Meanwhile, a group of countries that included Greece, Italy, Spain and Portugal "suffered significant losses" in price competitiveness, and now face the challenge of correcting structural problems, Weber said.

It was the second time in four days a Bundesbank official defended Germany against remarks it was not doing enough to help Greece in particular resolve its financial problems.

On Friday, Bundesbank board member Thilo Sarrazin said Greece should be prepared to declare itself insolvent if it could not repay its debts.

If Greece were unable to do so, "it will have to do what all the indebted do, declare itself insolvent ... that would be the best warning example for other potentially weak states" in Europe, Sarrazin said.

German research director Ansgar Belke from the DIW economic think tank told AFP that "Germany feels betrayed to a certain extent because it gave up the deutschmark, and was guaranteed some stability" if it pooled the Bundesbank's reputation for monetary discipline with eurozone partners.