BERLIN: The euro zone's strategy for tackling Greece's debt crisis comes at a price and should remain an isolated case, ECB Executive Board member Lorenzo Bini Smaghi was cited as saying in a German paper.
Bini Smaghi echoed critical comments by fellow ECB policymaker Jens Weidmann after the ECB relented on its opposition to a temporary Greek default, giving an emergency summit of euro zone leader leeway to agree a second bailout for the debt-chocked country.
A day before Thursday's summit, Bini Smaghi had said a restructuring of Greek debt soft or hard would be "a disaster".
"Given the difficulty of the situation, a good compromise was certainly found," Bini Smaghi was cited as saying in the prepublication of an interview for release in Sunday's Welt am Sonntag. "But we should not act as if this agreement was free of charge."
Euro zone leaders announced on Thursday a second bailout for Athens involving an extra 109 billion euros of government money, plus a substantial contribution from private sector bondholders, who will voluntarily swap their Greek paper for longer maturities at lower interest rates.
To enable the agreement, the ECB had to relent on its opposition to Greek default and signalled it was willing to let this happen temporarily as long as it was a strict one-off.
"The agreement must remain an isolated case. Ireland and Portugal have shown their determination to carry out their savings programes and are on course," said Bini Smaghi.
Weidmann, who also heads Germany's Bundesbank, said on Friday the Greek aid deal weakened incentives for euro zone countries to maintain solid finances and was a step towards a transfer union.
Bini Smaghi who is under pressure to quit the ECB to smooth the way for fellow Italian Mario Draghi to become its president said the debate about debt restructuring had destabilised financial markets and weakened the currency union.
"We must avoid false incentives and the impression that restructuring is an easy exit," he said. "We cannot reward countries for not sticking to the rules of the stability pact."
Yet Bini Smaghi said that the agreement to restructure Greek debt did not mean the euro zone was turning into a transfer union, noting Greece would have to pay back aid with interest.
Regarding Italy, Bini Smaghi said he was confident that, despite upcoming elections, the government would stick to an austerity package launched earlier this month to avert a fiscal crisis.
Copyright Reuters, 2011