* Belgian minister issues Greek exit warning
* Large Spanish region says needs financing help
* Bankia set to ask for 15 bln euros from Spanish state
* French banks make Greek contingency plans - sources
By Fiona Ortiz and Nicholas Vinocur
May 25 Central banks and companies not bracing
for a possible Greek euro exit would be making a grave error,
Belgium's foreign minister said on Friday, rattling markets
already alarmed by Spain's deteriorating finances.
Greek elections are due on June 17 and could hasten the
country's departure from the currency club should a government
intent on ripping up the country's bailout programme result.
Polls suggest the outcome is too tight to call.
Greece accounts for little more than two percent of the euro
zone economy but could pose a profound contagion threat if it
quit the currency area, throwing the spotlight on Portugal,
Spain and even Italy.
"There is no organised discussion at the European level
along the lines of: what do we do (if Greece leaves)," Belgium's
Didier Reynders told the European American Press Club in Paris.
"Now, if central banks and companies are not preparing for the
scenario, that would be a grave professional error."
Spain is in plenty of trouble even disregarding any backwash
Its important autonomous region, Catalonia, said it needed
help from the central government because it was running out of
options for refinancing debt this year.
"We don't care how they do it, but we need to make payments
at the end of (each) month. Your economy can't recover if you
can't pay your bills," Catalan President Artur Mas told
Spain's trump card was that it had successfully issued will
over than half the sovereign debt it needs to in 2012.
But after revealing this week that its highly indebted
regions faced 36 billion euros of debt refinancing bills this
year, way above the previously stated 8 billion, that advantage
may have been wiped out.
On top of public debt, the country is hobbled by a banking
sector overwhelmed by bad debts tied to a property market boom
that bust and has some way further to fall.
Troubled lender Bankia is set to ask the state
for a more than 15 billion euros ($19 billion) bailout, well
above the 9 billion euros the government had mentioned.
Spain is nationalising Bankia, which holds some 10 percent
of the country's bank deposits. The government insists the bank
is a one-off case but economists say a wider bailout of the
sector, either by Madrid or the euro zone, may become necessary.
Markets have been buffeted this way and that by the
escalating euro zone crisis in recent weeks and face more
uncertainty up to the Greek election date any maybe beyond.
The euro plumbed a fresh 22-month low against the
U.S. dollar on the back of the Catalonian warning, stocks went
into reverse and Italian and Spanish borrowing costs rose.
Having risen 0.8 percent earlier in the session the
FTSEurofirst 300 index of leading European shares was
down 0.2 percent by 1400 GMT.
"The Catalonia news was a big deal because it implies that
the Spanish government may have to take on more debt and it
cannot afford to do so," said Richard Franulovich, senior
currency strategist at Westpac Securities in New York.
EU leaders insisted at a summit on Wednesday that they
wanted to keep Greece in the euro zone and they have good reason
to, given the losses that could be inflicted on them and the
European Central Bank should the country default on its debt.
But sources told Reuters the Eurogroup Working Group -
experts who work for the bloc's finance ministers - had told
member states to begin making contingency plans for the
"Our first priority is to keep Greece in the euro zone
whilst they are respecting the commitments," European Council
President Herman Van Rompuy told a news conference during a
visit to Ljubljana, Slovenia on Friday.
"Of course we are reflecting on all different kind of
scenarios but we never discussed them neither in technical nor
in political form," he said. "The contingency plan is not our
French banks, which are among the lenders most exposed to
Greece, have stepped up their plans for a euro zone exit,
sources familiar with the situation said. They include Credit
Agricole, BNP Paribas and Societe Generale
"Every bank has a task force right now looking at the
potential consequences of a return to the drachma," a
Paris-based banker said.
Most economists agree the austerity measures foisted on
Greece as part of its 130 billion euros bailout will be
impossible to deliver since they will drive the country deeper
into recession and make debt even harder to cut.
Peter Bofinger, one of the five "wise men" who formally
advise the German government on the economy, said Europe should
renegotiate the terms of Greece's bailout as they were agreed on
overly optimistic assumptions about growth.
"The terms for Greece should be renegotiated," Bofinger told
Reuters in an interview. "That's very important for both sides,
because if you have an uncontrolled exit of Greece, it could
lead to a 'Lehman moment' for Europe."