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Any country leaving euro zone must settle bill first: ECB's Draghi
January 20, 2017 / 7:00 PM / 8 months ago

Any country leaving euro zone must settle bill first: ECB's Draghi

European Central Bank (ECB) President Mario Draghi addresses the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium, November 28, 2016. REUTERS/Yves Herman/File Photo

FRANKFURT (Reuters) - Any country leaving the euro zone would need to settle its claims or debts with the bloc’s payments system before severing ties, European Central Bank President Mario Draghi said.

The comment - a rare reference by Draghi to the possibility of the currency zone losing members - came in a letter to two Italian lawmakers in the European Parliament released on Friday.

It coincides with a groundswell of anti-euro sentiment in Italy and other euro zone states, fueled in part by last June’s unprecedented decision by Britain to leave the European Union.

”If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would

need to be settled in full,” Draghi said in the letter.

European Central Bank (ECB) President Mario Draghi addresses a news conference at the ECB headquarters in Frankfurt, Germany, January 19, 2017. REUTERS/Kai Pfaffenbach

Based on data to end-November from the Target 2 payment system, that would leave Italy with a 358.6 billion euro ($383.1 billion) bill. The system records flows of payments between euro zone countries.

The threat of defaults on cross-border debts has often been credited as one element keeping the euro zone together throughout the financial crisis.

As these payments are not generally settled, weaker economies including Italy, Spain and Greece have accumulated huge liabilities towards Target 2 while Germany stands out as the biggest creditor with net claims of 754.1 billion euros.

Target 2 imbalances have worsened in recent months, with Harvard economist Carmen Reinhart warning of capital flight from Italy.

In the letter, Draghi reiterated that the imbalances were due to the ECB’s own bond buying-program, where many of the sellers are foreign investors with accounts in Germany, and ensuing portfolio rebalancing.

Reporting By Francesco Canepa; editing by John Stonestreet

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