MERKEL TO GREECE: Painful Austerity First, Economic Growth Second

Merkel, Papandreou

[credit provider=”AP” url=””]

BERLIN (AP) — German Chancellor Angela Merkel is insisting that structural reforms can help Greece return to economic growth following a painful austerity drive.Merkel acknowledged in an interview with Deutschlandfunk radio broadcast Sunday that spending cuts “indeed generally lead to the economy not being able to grow so much.”

However, she said there are plenty of examples of countries where International Monetary Fund programs have been implemented and “very strong phases of growth come after a certain phase of recession.”

Merkel said that is down to structural reforms which “never have immediate effects but need a certain time before their effects are felt — and they must of course be implemented vehemently.”

Germany, Europe’s biggest economy and the largest contributor to rescue packages for Greece and other strugglers, has led the push for austerity drives to get countries’ budget deficits under control, and for painful reforms.

German Foreign Minister Guido Westerwelle is to meet top officials in Greece on Sunday, carrying what his ministry calls a message of “encouragement and expectation” regarding Greece’s reform efforts. Athens has pledged to sell off state assets and try to improve its economy’s competitiveness.

Greece has become bogged down in a deep recession, which has been blamed largely on cutbacks and is expected to stretch into a fourth year in 2012.

Merkel said that “progress has been made in Greece,” but acknowledged that problems remain.

“A particular problem in Greece is that even when revenue improvements are agreed, for example tax increases, it doesn’t follow that more revenue actually comes in — because levying or collecting taxes in Greece is practically quite a problem,” she said.

Greece is now in high-stakes talks on a second bailout package. On Friday, negotiations between the government and private creditors on a bond swap deal needed to avoid default appeared close to collapse, with representatives of the bondholders saying they had been “paused for reflection.”