Deflation is the only way Greece can effectively tackle its debt problems, International Monetary Fund (IMF) managing director Dominique Strauss-Kahn said today.
"The only effective remedy that remains is deflation," Mr Strauss-Kahn told Austrian magazine Profil in an interview. "And this is exactly what the European Commission has correctly recommended."
Euro zone finance ministers approved a €30 billion emergency aid mechanism for debt-plagued Greece yesterday, but stressed Athens had not requested the plan be activated yet.
In the interview, Mr Strauss-Kahn also addressed how the wider euro zone could retain social security programmes while handling expanded state debt, suggesting pension benefits must be trimmed and higher inflation targets may be an option.
"The way out of debt in most countries is led by a reform of the pension or health care system," he said, adding that raising the retirement age could be one way of cutting expenditure.
Asked if he was in agreement with a February paper written by IMF chief economist Olivier Blanchard, which suggested higher inflation targets for the world's major central banks, Mr Strauss-Kahn said the IMF was aiming to bring up new ideas.
"We must also discuss, in the coming years, how high inflation should be. This question is extremely important."
Reuters