Tags: greece | bailout | debt | euro | crisis | ecb

ECB's Mersch: Greek Rescue Delay Risks Crisis

Sunday, 17 Jul 2011 02:23 PM

Further delays in agreeing a fresh bailout package for Greece risk tipping the euro zone into a full-blown currency crisis, European Central Bank policymaker Yves Mersch said.

Mersch, who is the head of Luxembourg's central bank, told Japanese news agency Nikkei that financial markets are "very insecure" mostly due "to hesitant decision-making on the level of finance ministers."

Euro zone leaders will meet in Brussels on July 21 to discuss a second bailout package for Greece and the financial stability of the euro area.

"Right now we are clearly in a debt crisis. But if we are incapable to react to the crisis responsibly, this could undermine the euro," Mersch told Nikkei in an interview published on its Website on Sunday.

"The debt crisis can turn into a euro crisis."

Mersch partly blamed markets' insecurity on calls for private-sector financial institutions to voluntarily assist with Greece's rescue, Nikkei reported. Private-sector involvement "must not be a precondition from the start," he said.

"In some countries there are pressures from populist movements," he said. "This leads to proposals from different ministers which were not in accordance with the so-called International Monetary Fund doctrine."

One proposal that has been discussed is to have banks and other owners of maturing Greek bonds roll over the debt.

Mersch stuck to the ECB's position that it would not accept collateral that is in default.

This approach is aimed at making sure euro zone governments -- with or without the private sector -- assume the cost of dealing with the crisis, rather than pushing it over to the ECB, which fears its independence being compromised.

In the high-stakes standoff over the Greek crisis, the collateral card is the closest the ECB has to an ace: refusing to accept Greek sovereign bonds as collateral would deprive Greek banks of the funds on which they rely, crippling the Greek economy and risking contagion to other euro zone economies.

Mersch added that if "the program is implemented rigorously, Greece can return to a sustainable growth path."

© 2015 Thomson/Reuters. All rights reserved.

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