Bundesbank head warns of Greece's increasing insolvency, plays down bond market worries

On Thursday Jens Weidmann, Bundesbank head and European Central Bank Governing Council member, increased the pressure on Greece to meet the demands of its international partners, as there is a mounting risk of a self-destructive insolvency that would first of all damage the Greek economy and society.

There is a strong desire to help Greece improve its public administration, remove barriers to growth and put public finances on a sustainable path, and substantial money of taxpayers from all over the eurozone was directed to adjust the unavoidable processes, he said.

“But time is running out, and the risk of insolvency is increasing by the day,” Weidmann added.

The contagion effects of such a scenario are now better manageable than in the past, though they should not be underestimated.

“But the main losers in that scenario would be Greece and the Greek people.”

The comments come a day after German Chancellor Angela Merkel, French President François Hollande and Greek Prime Minister Alexis Tsipras met in Brussels to reach a smooth differences in the sides' perception regarding Greece's frozen bailout package.

Mr Weidmann played down worries in financial markets about the recent rise in bond market yields saying that "the most recent rise in yields can be largely explained as a correction of a market overshooting—a kind of re-normalization.”

Selloff in the German bond market was increased after last week comments ECB President Mario Draghi said that markets should prepare to higher volatility.

But according to Weidmann, the current level of volatility is not exceptionally high. 

"It has been unusually low over the past year. So these market movements are a rather welcome development insofar as they help to foster risk awareness,” he said.