ECB’s Bini Smaghi-Greece a warning sign to others worldwide

By Marc Jones

FRANKFURT, May 28 (BestGrowthStock) – European Central Bank
policymaker Lorenzo Bini Smaghi said on Friday the euro zone’s
problems were an early warning to the rest of the world and took
a swipe at Germany for fanning the flames of the crisis.

Bini Smaghi, one of the ECB’s six-strong Executive Board,
also slammed predictions that Greece will eventually default on
its debt, saying anything along those lines “was not a viable
option” in the eyes of euro zone governments, the ECB and the
IMF.

In the text of a speech to be delivered at a Group of 30
conference in Rabat, he said the euro zone turmoil, which has
wiped off more than 15 percent of the euro’s value since the
start of the year, was a signal to others to fix their finances.

“To repeat a much used metaphor, we could say that euro area
tensions are ‘the canary in the coal mine’ of the challenges
that policymakers worldwide are going to face,” he said.

Financial markets were in the process of testing countries’
ability to force through necessary fiscal corrections, he said,
and the problems facing Greece and other financially strained
euro zone members, were already spreading.

“Just look at the screens and you’ll see the contagion under
way, spreading not only to peripheral countries but also to the
largest euro area countries and through the financial system.”

For text of speech, please click:
http://www.ecb.int/press/key/date/2010/html/sp100528.en.html)

There was also a thinly-veiled swipe at Germany for using
alarmist rhetoric to try and garner domestic support for Greek
aid.

“In one large euro area country it was thought that public
support for swift action could be achieved only by dramatising
the situation, for instance, by telling the public that
‘the euro is in danger’,” he said referring to comments by
German Chancellor Angela Merkel on May 19. [ID:nBAT005472]

“But it was not realised that, in the midst of a financial
upheaval, such words are like fanning the flames and that the
cost of the support package could only increase following
such dramatic declarations.”

Bini Smaghi slammed the idea that Greece’s problems would
force it to default on its debt eventually.

“The IMF, the euro area governments, the Greek government
and the ECB however take a different view.

“They all consider that a default is not a viable solution.
And they have taken decisions consistent with this view and
put money – taxpayers’ money – where their mouths are.”

He also stressed that the ECB would not permit a rise in
inflation to erode the real value of governments’ debts.

There would be grave consequences if Greece was allowed to
default or inflation was allowed to rise.

“Sticking to commitments, in particular in the case of the
Greek programme, is essential for the credibility of the (euro)
currency,” he said.

Stock Market Trading
(Reporting by Marc Jones, editing by Mike Peacock)

ECB’s Bini Smaghi-Greece a warning sign to others worldwide