DRAGHI WARNS OF "UNCHARTED WATERS" IF GREECE CRISIS DETERIORATES / THE FINANCIAL TIMES

April 18, 2015 6:57 pm

Draghi warns of ‘uncharted waters’ if Greece crisis deteriorates

Sam Fleming and Chris Giles in Washington

©Bloomberg

Mario Draghi said the euro area was better equipped than it had been in the past to deal with a new Greek crisis but warned of “uncharted waters” if the situation were to deteriorate badly.

The European Central Bank president called for the resumption of detailed discussions aimed at resolving the country’s debt woes and urged the Greek authorities to bring forward proposals that ensured fairness, growth, fiscal stability, financial stability.

Asked about the risks of contagion from a new flare-up in Greece, he said: “we have enough instruments at this point in time . . . which although they have been designed for other purposes would certainly be used at a crisis time if needed.”

The two tools he referred to were the ECB’s so-called outright monetary transactions, which have never been used, and Quantitative Easing, which the ECB launched in January. He added: “we are better equipped than we were in 2012, 2011 and 2010.”

However Mr Draghi added: “Having said that, we are certainly entering into uncharted waters if the crisis were to precipitate, and it is very premature to make any speculation about it.”

The ECB president was speaking following meetings in Washington that have been overshadowed by renewed fears about the risk of a Greek debt default and possible exit from the euro.

US Treasury secretary Jack Lew warned on Friday that a full-blown crisis in Greece would cast a new shadow of uncertainty over the European and global economies, as he put pressure on Athens to come forward urgently with detailed reforms to its economy.

 

Mr Lew said that while financial exposures to Greece had changed significantly since the turmoil of 2012, it was impossible to know how markets would respond to a default.

There is mounting frustration among Greece’s partners over faltering attempts to sort out its financial woes. Pierre Moscovici, the European commissioner for economic and financial affairs, has set the mid-May meeting of eurozone finance ministers as the decisive moment for Greece to agree a new set of economic reforms or face possible default.

Greece is being urged to speed up technical discussions on a list of reforms it has submitted that, if agreed, would unlock €7.2bn in loans from Greece’s eurozone partners. Without this funding, Greece is likely to run out of money and default either to the IMF in May or June, or to the European Central Bank later in the summer when large numbers of bonds held by the central bank mature.

Expressing confidence in the euro’s continued stability, Mr Draghi said on Saturday it was “pointless” to go short on the single currency — challenging anyone who disagreed to do it.

The ECB president said that “good steps” had been taken but that there was a need for the restoration of policy dialogue so that “specific proposals can be made and quantified and exactly assessed.”

Delegates to the IMF’s spring meetings have expressed deep concern that Greece’s senior ministers are not taking the technical talks seriously and are in no mood to release the money without substantive progress.

Christine Lagarde, head of the International Monetary Fund, earlier this week said her advice was for Athens to take on the “tedious” technical work of designing reforms to the Greek economy and a credible implementation plan rather than hope for a grand political bargain.

Yanis Varoufakis, the Greek finance minister, said this week that Greece was willing to give ground in its negotiations but that “we are going to compromise, compromise, compromise without being compromised”.