Top Italy banker says risk of euro breakup growing

TRENTO, Italy Fri Jun 1, 2012 5:07pm EDT

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TRENTO, Italy (Reuters) - A top Italian banker said on Friday that the European single currency was "on the edge of the abyss", and indicated that national regulators were helping to cripple interbank lending across the euro zone by urging banks to lend domestically.

"The Greeks will decide on their own whether to stay in the euro or leave it, but if they leave and we haven't decided what to do to keep the others in, everything will fall apart," Alessandro Profumo, chairman of Italy's third-largest lender Banca Monte dei Paschi di Siena (BMPS.MI), told an economic conference in Trento, Italy.

"We are on the edge of the abyss ... The risk that (the single currency) may fall apart rises every day."

Greece is holding a new election in mid-June that could determine whether or not it remains in the euro zone.

Profumo, previously chief executive of UniCredit (CRDI.MI), Italy's biggest bank by assets, said that while European policymakers were taking time to ponder a course of action, rapid decisions were needed.

"If we continue to hold discussions, Italian government bonds won't be renewed and banks will end up totally dependent on European Central Bank liquidity," he said.

Italy has the world's fourth-largest public debt and its large refinancing needs make it vulnerable to a worsening in the euro zone debt crisis.

Calls are growing in Europe for progress towards a single banking system, with some central bankers seeing it as an essential step to overcome the crisis, which has dried up cross-border capital flows, crippling the euro zone's interbank lending market.

Speaking at the same conference on Friday, European Central Bank Executive Board member Benoit Coeure warned against the disintegration of a single market for capital in Europe.

Profumo urged a uniform regulatory environment for banks in Europe.

"Every regulator says not to lend money to a bank in a different country because there is a risk," he said, adding that this meant a single European market for banks no longer existed.

(Reporting by Valentina Za; Editing by Kevin Liffey)

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