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Banker warns Greece on halting reforms

Election changes could bring ouster from euro zone

The Greek election campaign “has temporarily sidelined planned reforms,’’ said the Bank of Greece governor. AFP

WASHINGTON - The head of Greece’s central bank warned Tuesday that the country could be forced to break with the European Union if its politicians do not stick with promised economic reforms after the May 6 elections, which threaten to toss out the current ruling coalition.

The warning from Bank of Greece governor George A. Provopolous came as a backlash against the euro region’s austerity drive appeared to gather steam, threatening to derail the plans laid by European leaders to tame the financial crisis.

Greece’s current caretaker government recently accepted a new round of international bailout loans in return for efforts to overhaul Greece’s economy, including slashing the public work force and introducing more competition in a long list of professions protected by government regulation.

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Polls have shown rising support for smaller political parties that oppose the austerity plan.

The campaign “has temporarily sidelined planned reforms,’’ Provopolous said in his annual report on the Greek economy. “If, after the elections, there is any question about the will of the new government and society to implement the program . . . the country will then be at risk of finding itself very soon in a particularly adverse situation.

“What is at stake is the choice between an orderly, albeit painstaking, effort to reconstruct the economy within the euro area, with the support of our partners, or a disorderly economic and social regression, taking the country several decades back, and eventually driving it out of the euro area and the European Union.’’

Despite a recent lull in some aspects of Europe’s problems, Provopolous’s remarks are a reminder that the currency union still faces a deep and difficult economic adjustment. On Monday, the governing coalition of Dutch Prime Minister Mark Rutte collapsed after the populist Freedom Party, led by euro opponent Geert Wilders, abandoned negotiations over ways to meet national deficit targets. National elections are now expected to be held in June.

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The Netherlands, which prides itself on fiscal prudence, has been one of the strongest advocates in Europe for strict deficit limits throughout the region. The Dutch government’s inability to raise the retirement age and take other steps could signal trouble for the German-led campaign for European austerity.

The strength of the blowback could become clearer after voters in France, Greece, and Ireland hold elections that amount to a referendum on Europe’s economic direction. The coming round of voting “could mark the beginning of a change to the entire euro zone crisis management,’’ analysts at ING wrote.

Last week, the International Monetary Fund warned that the recent lull should not be an excuse for the euro zone to slow the pace of economic overhaul or to assume that the worst of the crisis is over. There is an increasing sense - at the IMF and elsewhere - that the drive for austerity has made the euro zone’s economy worse. But there also are fears that a change of direction could lead investors to turn away and force a new round of costly international bailouts.