UPDATE 1-IMF chief economist: doubts over Greek aid remain

* Greek past, doubts over aid keep markets “concerned”

* Other euro zone members don’t need such drastic measures

* No U.S. contagion but adjustment plan needed – Blanchard

By John Irish

PARIS, May 24 (BestGrowthStock) – The IMF’s chief economist warned
on Monday that markets will remain concerned until doubts over
the European Union delivering on its aid promise to the Greek
government and Greece’s debt-payment history are resolved.

“The markets are wondering if Greece will be able to repay
its debt or not,” Olivier Blanchard said in an interview to be
published on Tuesday in La Tribune newspaper. “Given the
behavior of Greek governments in the past, their uncertainties
are understandable.”

There are also doubts about the EU’s ability to deliver the
money it has promised to finance the Greek government and about
the European Central Bank’s policies, Blanchard said.

EU governments are trying to regain investor confidence
after months of turmoil that have pushed many euro zone states’
borrowing costs sky high and led to a 110 billion euro ($136
billion) bailout of Greece plus a 750 billion euro safety net
to try to prevent contagion. [ID:nSGE64N01P]

Blanchard said Greece must show determination in
implementing the plan agreed with the EU and the International
Monetary Fund, parliaments across the euro zone must agree on
the measures and the ECB must clarify its position and convince
markets it would continue to buy government bonds.

Germany’s parliament approved a law on Friday allowing
Europe’s biggest economy to contribute to the emergency debt
package despite broad public opposition.

A clear majority of lawmakers in the lower house backed the
bill. But in a sign of domestic pressure piling on Chancellor
Angela Merkel, 10 members of her own center-right coalition
voted against it or abstained.

U.S. ADJUSTMENT PLAN

While Greece has no alternative but to accept the austerity
measures, Blanchard echoed comments by IMF chief Dominique
Strauss-Kahn that, to avoid dampening growth, big euro zone
countries should not focus too quickly on narrowing budget
deficits.

“Other European countries do not need to take such drastic
measures as Greece,” he said. “They are more credible to begin
with, have less debt and can afford a more gradual adjustment,
and therefore limit the negative impact … on growth in the
short term.”

Barring “catastrophic events,” Blanchard said the debt
package from Europe and the IMF would be enough.

The United States did not have to worry about contagion
but, given its very large deficits, it will also need to
introduce an adjustment plan, albeit more gradually, he said.

“The behavior of markets shows that the U.S. Treasury bills
remain the safe haven,” Blanchard
said.

“However, the depreciation of the euro is not good news for
the United States. This will increase pressure on other
countries, especially emerging Asian countries, to revalue
their currencies.”

Stock Market Today
(Editing by John O’Callaghan)

UPDATE 1-IMF chief economist: doubts over Greek aid remain