BERLIN (Reuters) - A eurozone bailout of Greece would weaken the euro and deeply damage the reputation of the European monetary union, former European Central Bank chief economist Otmar Issing said in a newspaper article on Friday.
Issing, a respected figure in central banking circles, wrote in Germany’s Frankfurter Allgemeine Zeitung that each member of the euro zone was responsible for dealing with its own debt.
“Nothing would weaken the euro more and bury the reputation of the monetary union as a community of stable money more than a blatant breach of the precept of financial policy discipline,” wrote Issing, who has played a leading role in advising the German government on financial reform during the credit crisis.
“If the no bail-out clause is breached, all the dams will break. The Greek disease will spread,” he also wrote.
Greece has pledged to cut its budget deficit this year via welfare cuts, tax reforms and public-sector wages savings. Its prime minister said on Thursday it is the victim of speculators intent on attacking a “weak link” in the euro zone and will not need to be bailed out.
But markets are still worried Athens will not be able to service its debt, putting pressure on the euro and raising speculation as to whether Greece could be forced out of the currency bloc.
“The “no bail-out” clause is the indispensible flip side of the coin to national sovereignty in financial policy,” said Issing.
“According to that, each state is itself responsible for its own public finances, member states do not guarantee the debts of others. This principle allows no compromises. If an exception is made, there will be no holding back. The fear that Greece could set off a chain reaction would become a certainty,” he added.
“If the community helps Greece, which blatantly breached the community’s rules and went into the crisis with heavy debt, how can you then refuse others?” he said.
(Reporting by Madeline Chambers; editing by Patrick Graham)