Greece will remain in the euro even if it fails to meet a debt payment, according to Italian Prime Minister Matteo Renzi’s economic adviser.
Filippo Taddei, a key aide to Renzi during his overhaul of the euro region’s third biggest economy, said that “nobody knows” whether Greece can meet its debt obligations from one day to the next. As a result, “plans are being set” at European level to mitigate the effect of a Greek default, he said in an interview in Rome on Tuesday.
“It’s an intellectual and analytical mistake to think that a default on Greek debt would automatically bring Greece out of the euro,” Taddei said. “The euro is not just an economic project but has a strong political project, and it is very hard to envisage a united currency without Greece.”
Taddei’s comments are the strongest public indication yet that Greece’s euro-area creditors are preparing a plan in case Prime Minister Alexis Tsipras’s government is unable to meet a payment on its outstanding debt. The Greek economy returned to recession in the first quarter, European Union statistics showed on Wednesday, two days after Finance Minister Yanis Varoufakis said that Greece will run out of cash within a couple of weeks unless it gets help.
Italy, which saw 10-year bond yields soar to more than 7 percent in November 2011 at the height of the debt crisis, would again suffer “additional volatility,” if Greece got into more difficulty, Taddei said. Similar Italian debt yielded about 1.82 percent as of 11:22 a.m. in Rome.
“In the face of an extraordinary event, you would also witness some extraordinary support” for Greece, Taddei said. Plans are being drawn up in “the proper European” forums to prepare for a possible default. While Taddei declined to be drawn on specifics, he said that European institutions were now “a lot more attentive, a lot more ready to respond” to such volatility than during previous financial crises.
“We all learned that European institutions in general were not very active and were not very quick at addressing the crisis, or the shock, or the consequences of the crisis. But I think that lesson has been learned and now there is increased awareness that you have to react quickly,” Taddei said. “We will be ready to act.”
That includes taking part in any third rescue package for Greece. Italy, he said, “will always take part in any effort to safeguard the euro.”
Taddei, an assistant professor at the Johns Hopkins University Sais in Bologna, spoke at a cafe as two bodyguards hovered nearby. He has been under armed protection since late last year after receiving threats because of his work masterminding Renzi’s labor-market reform.
“One of the most common mistakes we make is that we do not consider the fact that behaviors adjust in the face of events,” he said. “If you had a massive default which imposed a great cost on member countries, you should expect that European institutions would adapt to manage that cost.”