Greek default 'cannot be excluded'

A situation where Greece cannot pay back its public debt can no longer be excluded, European Central Bank governing council member Klaas Knot was quoted as saying today.

Until recently, European leaders have rejected any chance of Greece defaulting, but are moving slowly to allow for the possibility of this happening.

Mr Knot became the first euro zone central banker warning outright of the possibility of a Greek default.

Asked by Dutch daily Het Financieele Dagblad about a Greek default, Mr Knot admitted it was being studied.

"It is one of the scenarios. I'm not saying that Greece will not go bankrupt," he was quoted as saying.

"I've long been convinced that bankruptcy is not necessary. The news from Athens, however, is at times not encouraging."

The Dutch central bank head, who entered office this summer in a controversial appointment, continued by saying European partners had worked hard to help Greece, but faulted the country for not understanding the gravity of the situation.

"All efforts are aimed at preventing this, but I am now less certain in excluding a bankruptcy than I was a few months ago," Mr Knot said, and continued by saying he wonders "whether the Greeks realise how serious the situation is".

European Union economic and monetary affairs commissioner Ollie Rehn said European leaders will not allow an uncontrolled default of Greek debt and will not let the country leave the euro zone, but did not explicitly rule out the possibility of Greece defaulting, which many economists now see as inevitable.

In a sign of a sharper tone from central bankers, an ECB study, co-authored by executive board member Juergen Stark, yesterday warned the entire euro currency project was now in peril.

The ECB announced last week Mr Stark's resignation from the region's central bank. Sources have said he left because of his resistance to ECB's bond buying, which Mr Knot also opposes.

Reuters