ECB Official says Greek Aid Package ‘Vital Step’
In Japan European Central Bank Executive Board member Lorenzo Bini Smaghi said that the recent loan EU/IMF loan agreement is a vital step in addressing Greece’s debt crisis. He also dismissed speculation that the deal may prompt a euro zone breakup or that Greece would default. Smaghi stated, “This announcement makes it clear what the euro area authorities have said since many months, i.e. that a scenario of default and exit from the euro area, which some market participants and observers had toyed with, was simply absurd.” He also addressed market concerns saying, “Vague statements that some event, such as a default, will not occur, are not sufficient to calm the markets. Concrete actions are needed. This was not fully understood over the last few months. This experience should now be used to create a more efficient decision making process within the euro area aimed in particular at preventing similar situations from occurring in the future and eventually at solving them more efficiently.”
Financial Industry Controls Needed
He also said that high borrowing costs and the premium demanded by speculators will increase the chance of a default. Smaghi also called for controls on the financial industry and said, “Given the obvious negative impact of an excessively large financial industry, we keep asking ourselves whether limits should be imposed on the size of the financial sector itself … The answer to this question is yes. A financial sector which goes beyond a certain threshold (or breaking point) can harm the economy and society as a whole.”
Greece Calls For Talks
Recent news reports indicate that Greece has called for talks with the EU, ECB and the IMF which many believe is a first step in asking for outside help. Greek Finance Minister George Papaconstantinou called for talks on “a multi-year program of economic policies.” The IMF said it will send representatives to Athens on Monday and will be joined by representatives from the ECB and the European Commission. Officials from Greece and the IMF said that Greece has not yet decided whether to activate a loan mechanism agreed upon last Sunday by EU finance ministers. Under the agreement the EU would loan Greece 30 billion Euros and the IMF would provide more money. Many believe that the talks are a first step in activating the loan mechanism. Ben May of Capital Economics stated, “The fact that they are asking for clarification on various issues about the mechanism suggests that they are seriously considering activating the package.”
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