Greek exit not fatal for euro zone - ECB's Honohan

TALLINN Sat May 12, 2012 7:31pm BST

A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt February 29, 2012. REUTERS/Alex Domanski

A sculpture showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt February 29, 2012.

Credit: Reuters/Alex Domanski

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TALLINN (Reuters) - A Greek exit from the euro zone would damage confidence in the single currency bloc but not necessarily be fatal, Irish central bank chief and European Central Bank policymaker Patrick Honohan said on Saturday.

The prospect of a Greek euro exit has arisen after European countries said Greece cannot get more of the financial aid on which it is dependent if it does not meet the terms of its bailout. But parties backing the bailout programme have no majority in parliament after inconclusive elections last week.

"It (a euro exit) is not imagined in the legislation, in the treaties, but things can happen that are not imagined in the treaties," Honohan told a conference in the Estonian capital.

"Technically, it can be managed. It (a Greek exit) would be a knock to the confidence for the euro area as a whole. So it would add to the complexity of the operation until things settle down again. It is not necessarily fatal, but it is not attractive," he said.

He said everyone was working to avoid such an exit, including in Greece, and that if anyone thought about such a development they would view it as "a very unattractive hypothesis for the rest of the euro area and a rather destabilising kind of event".

European Commission Economic and Monetary Affairs Commissioner Ollie Rehn said leaving the euro zone would be bad for Greece and Greek cities and noted that the size of the bailout had shown European solidarity.

"Greece is getting external aid in terms of loans or debt relief altogether equal to 177 percent of its GDP: 200 billion (euros) from the Europeans and the IMF in terms of loans and about 100 billion (euros) in debt relief from private creditors," he said.

Latvian Prime Minister Valdis Dombrovskis, whose own country successfully completed a bailout programme involving austerity measures equal to more than 10 percent of output, said his country would not have got any aid if there had been a parliament majority against the bailout.

"You need to have an exit strategy. That is the point, that is why the Greeks are frustrated, they don't see an exit strategy and that is why other countries are frustrated they also don't see an exit strategy," Dombrovskis added.

(Reporting by David Mardiste, writing by Patrick Lannin; Editing by Toby Chopra)

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