Belfast Telegraph

ECB banking on Greece staying in the eurozone

By James Ashton & AP

The European Central Bank believes Greece must stay in the eurozone.

Executive board member Joerg Asmussen told a conference in Germany that this is the ECB's preference as "plan A" and that the bank is not considering any other scenario.

"That's the Plan A, that's what we're working on," he said.

When asked whether there was a plan B, he added: "There's already been criticism that there is none. But as soon as you start talking about 'plan B' or 'plan C' then 'plan A' is automatically thrown out of the window."

Greeks go to the polls again on June 17 after inconclusive elections on May 6 and the electorate has been warned that if it does not vote to comply with tough austerity measures as part of its EU/IMF/ECB bailout terms, it will have to face potential expulsion from the euro area.

The fragile situation in Greece also dominated G8 talks at the weekend.

Mr Asmussen also said that the ECB remains opposed to any easing of tough fiscal rules agreed by EU leaders earlier this year.

The fiscal pact "must not be renegotiated or watered down," he said but conceded that a package of growth measures could also be considered. Mr Asmussen added.

"No-one in Europe is opposed to growth," he said.

Meanwhile, one of Europe's leading fund managers has said that Spain's banking system will have to be bailed out in the coming months.

Dominic Rossi, chief investment officer for equities at Fidelity Worldwide Investment, likened the ensuing collapse, which will include the exit of Greece from the euro, to the 1990s Latin American meltdown.

"I don't think it will be long before Spain will need to seek official assistance in the recapitalisation of its banks from both the European Central Bank and the International Monetary Fund," he said.

"Spain has a lot of assets outside of the country which can be sold and certainly I suspect some of those assets will come on to the market in order to recapitalise the banks before this is all over."

Mr Rossi, who oversees £155bn of assets at Fidelity, believes that the Greek exit could provide the impetus for greater debt reduction in other struggling eurozone nations.

"The key for me, in the event that Greece does come out, is what is the popular reaction in both Spain and Italy towards austerity?" he said. "What I would hope and expect to see is once Greece leaves the euro that the impact it has is visible to all, and that will engender far more support in Spain and Italy for the current programme."