September 8, 2011 / 6:14 PM / 6 years ago

Italy contagion would destroy euro zone - Poland

KRYNICA, Poland (Reuters) - The euro zone needs to get ahead of the curve in tackling its sovereign debt crisis and above all prevent it infecting Italy or else face disaster, the finance minister of Poland, current holder of the EU’s rotating presidency, said on Thursday.

Poland, largest of the European Union’s new member states, does not belong to the euro zone but says it still hopes to join the common currency once the crisis has been resolved.

“There is no way the euro zone will survive a sovereign debt crisis in Italy,” Jacek Rostowski told an economic forum in Krynica, southern Poland.

“If a large euro zone country gets embroiled in the crisis, we would have an extremely dangerous situation.”

The European Central Bank last month began buying the debt of Italy and Spain -- respectively the third and fourth largest economies in the euro zone -- after a big jump in their bond yields.

With that decision, Rostowski said, ECB governor Jean-Claude Trichet had “saved the euro zone” and possibly the EU.

“The ECB has bought us some time but this is a temporary solution,” said Rostowski, who told Reuters in an interview last month he believed the euro zone was moving towards a fiscal union.

Squabbling over the size of the euro zone’s new rescue fund, the European Financial Stability Facility (EFSF), exemplifies the weakness of its approach, he said.

“We are always behind the curve... If we had created an EFSF with firepower totalling 450 billion euros (391 billion pounds) of real disbursable funds, not 250 billion euros, we would not have had the problems we have had,” he said.

European leaders agreed in the summer to boost the size of the EFSF, whose “effective lending capacity,” is now around 250 billion euros, to 440 billion, but this must be approved by national parliaments in the 17-nation euro zone.

Economists say rich euro zone countries may eventually have to override opposition from their taxpayers and pledge to contribute to a drastic expansion of the EFSF -- possibly doubling or trebling it -- to end the crisis.

Rostowski, a British-educated economist, also took a swipe at those suggesting surplus countries such as Germany, one of the world’s biggest exporters, might consider quitting the euro and forging a new strong currency.

“Do the surplus countries really want to create their own currency and see it appreciate like the Swiss franc?” he said, referring to the Swiss Central Bank’s decision this week to set a ceiling on the value of its currency versus the euro.

Reporting by Gareth Jones

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