Greek eurozone exit would not necessarily be fatal, says Honohan

A Greek exit from the eurozone would damage confidence in the single currency bloc but not necessarily be fatal, Central Bank chief and European Central Bank policy-maker Patrick Honohan said at the weekend.

The prospect of a Greek euro exit has arisen after European countries said Greece cannot get more of the financial aid on which it is dependent if it does not meet the terms of its bailout. But parties backing the bailout programme have no majority in parliament after inconclusive elections.

“It (a euro exit) is not imagined in the legislation, in the treaties, but things can happen that are not imagined in the treaties,” Mr Honohan told a conference in the Estonian capital.

“Technically, it can be managed. It (a Greek exit) would be a knock to the confidence for the euro area as a whole. So it would add to the complexity of the operation until things settle down again,” he said.

“It is not necessarily fatal, but it is not attractive.” He said everyone, including in Greece, was working to avoid such an exit, and that people would view this development as “a very unattractive hypothesis for the rest of the euro area and a rather destabilising kind of event”.

European Commission Economic and Monetary Affairs Commissioner Ollie Rehn said leaving the eurozone would be bad for Greece and Greek cities and noted that the size of the bailout had shown European solidarity. “Greece is getting external aid in terms of loans or debt relief altogether equal to 177% of its GDP: €200bn from the Europeans and the IMF in terms of loans and about €100bn in debt relief from private creditors,” he said.

Valdis Dombrovskis, the Latvian prime minister, whose country completed a bailout programme involving austerity measures equal to more than 10% of output, said his country would not have got any aid if there had been a parliament majority against the bailout.