LIMASSOL, Cyprus (MNI) – A departure of Greece from the Eurozone is
a “non-option,” European Central Bank ex-Vice President and current
Greek government advisor Lucas Papademos said Saturday.

Speaking during a panel discussion on financial stability,
Papademos noted the “speculation about what I would call the absurd and
purely hypothetical scenario of Greece exiting the euro.”

The notion “has already been dismissed as an absurdity by all
responsible authorities both in the European Union and in Greece,” he
said, calling it a “non-option” that “would have adverse consequences
both for Greece and the EU.”

Such talk, he criticized, “only contributes to public confusion.”

Papademos had similarly harsh words for the idea that a Greek debt
restructuring “can seemingly help…facilitate the adjustment process.”

Those who believe this, he charged, “fail to take into account” the
fact that “any debt restructuring.. would have very serious adverse
consequences for the Greek banking system, and the broader economy.”

A restructuring would be “undesirable both for Greece and the
EU…as it would entail far greater risks than any perceived benefits,”
he said.

“The resulting losses would ultimately be borne to a very large
extent by governments and taxpayers,” he said.

Papademos noted that “in a monetary union, debt restructuring would
have profound implications for the banking industry” and that it would
be “likely to undermine the appropriate focus and the strong effort
required to address the root causes of fiscal imbalances.”

In sum, he said, “the only sensible way is to proceed with
implementation of an adjustment program.” Improving Greek
competitiveness is essential to underpin the recovery, he said.

The process “will take time…but the outcome will be higher
sustained growth,” Papademos predicted. If Athens adheres to the
program, market conditions should “substantially improve” so as “to make
possible the borrowing required in the next two years at a reasonable
cost.”

Despite the unrest seen in Greece, “the majority of the Greek
public either supports or accepts this program as necessary,” Papademos
asserted.

Still, he added in reference to the European Financial Stability
Facility (EFSF) and the European Stability Mechanism (ESM) that will
replace the EFSF in 2013 that, “it would be helpful” if “the functions
of the EFSF and the permanent ESM are expanded to allow greater
flexibility to intervene in the secondary bond market.”

Papademos closed on a positive note: “I believe in the end the
crisis will be resolved because ultimately all countries are likely to
do the right thing and implement the appropriate policies…and because
I believe that in the EU all countries have a common interest in
preserving the stability of the euro.”

Questioned subsequently by the audience, Papademos expressed the
conviction that come what may, the ECB would “do the right thing to
protect financial stability in the euro area.”

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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