FRANKFURT (MNI) – Threats of expelling any country from the
Eurozone are not credible, European Central Bank Executive Board member
Lorenzo Bini Smaghi said on Friday.

Expelling a non-compliant member state from the currency union “is
not consistent with the political construction underlying the euro, and
ultimately not a credible threat,” he said in speech text prepared for
delivery in Brussels.

“Again, the euro is not an exchange rate mechanism that you can
enter or exit when you want or when pressured by others,” he asserted.

He shot down the arguments of those who say Greece would be better
off leaving the Eurozone, returning to a national currency, the drachma,
and devaluating it for competitive purposes. Not only would such a move
be “harsher” for the Greek people, but “what’s more, it doesn’t work,”
he said.

Bini Smaghi rejected the notion of an “orderly” debt restructuring,
suggesting any such move would carry severe contagion risks.

“Several commentators are proposing to include ‘orderly’ debt
restructuring mechanisms to force countries to comply with the rules,”
he noted. “There is no such a thing as an ‘orderly’ debt restructuring,
especially for advanced economies integrated in a monetary union.”

He added: “Those who propose it just assume that it exists, but
forget to specify its functioning and its implications, particularly in
terms of contagion to the whole financial system.”

Bini Smaghi also said that forecasts of the euro’s demise have been
made “prematurely,” noting that Eurozone institutions have responded to
challenges with “concrete measures.”

Steps to strengthen the framework within the monetary union have
been taken, he said. Nevertheless, with the crisis having exposed
weaknesses within the framework, further steps are needed to restore
confidence and prevent a recurrence of a similar event.

Still, markets are confident that the ECB will not “inflate away”
the Eurozone’s debt problems, as evidenced by the market pressure on
fiscally undisciplined EMU state members, he argued.

“In the euro area, fiscal problems have to be addressed by the
fiscal authorities, through fiscal measures,” Bini Smaghi said.

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