By Johanna Treeck

WASHINGTON (MNI) – The Greek banking system has left the worst
behind, Greek Finance Minister George Papaconstantinou said Saturday.

“Recent moves by Greek banks show that we do have a banking system
that is coming out of its worst period,” Papaconstantinou said during a
speech at the 2010 IIF Annual Meeting.

“We have a capital share increase for the biggest Greek bank of
four billion dollars, a lot of discussions between other banks that will
help them make strategic moves and thus make them more comfortable in
the environment,” he observed.

Papaconstantinou also said that “after many months of the steady
erosion of the deposit base we are seeing in September a reversal of the
trend which is a very positive sign.”

Ongoing dependency of weak banks in periphery countries, especially
Greece, has held up the European Central Bank’s exit from
non-conventional liquidity support even as overall money markets have
improved significantly.

The central bank is currently mulling options on how to deal the
these so-called addicted banks.

“The Greek banking system has never been at the root of the Greek
problems,” Papaconstantinou said. Nevertheless, it has been facing and
is continuing to face closed international financial market,” he added.

Papaconstantinou also said that the debt troubled country is well
on track to meet its deficit targets for 2010 and is racing ahead in
with structural reforms.

“We are more optimistic than we were a few months ago though we
are not out of the woods,” he said.

Asked what lessons the Eurozone needs to draw to avoid a repeat of
the Greek crisis in future, he said:

“We need a permanent mechanism for crisis prevention. I am not very
keen on the discussion of an orderly exit mechanism from the Eurozone.
That is for a very simple reason. Once you open that door then you are
telling the markets to keep pushing until that door is found.”

Instead, Papaconstantinou called for a mechanism that will force
countries not to deviate from fiscal or competitive but also protect
them against market speculation.

–Frankfurt bureau tel.: +49-69-720142. e-mail: jtreeck@marketnews.com

** Market News International Washington Bureau: 2020-371-2121 **

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