ECONOMY

Greek exit ‘catastrophe’ would be government’s fault

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The Greek government would be at fault if it fell out of the euro, plunging the country into an economic "catastrophe" and dealing a blow to the credibility of European project, the former head of the European Central Bank said on Wednesday.

The Greek government requested a three-year loan from the European Stability Mechanism bailout fund on Wednesday and has until the end of the week to present reforms to its European partners and keep the country in the single currency.

Jean-Claude Trichet, who as ECB president signed off on Greece's 2010 and 2011 bailouts, said European countries have shown they are prepared to help Greece but any agreement depends on Athens.

"If Greece really wants to have a deal, it has all the capacity to get it," Trichet said in an interview with Reuters.

"If there is no deal, it would be a Greek decision."

He predicted that a eurozone exit would cause a severe economic downturn in Greece.

"It would be a terrible catastrophe for the Greek people itself," he said. "You'd have an implosion of the economy, you have further, very large contraction of the GDP (gross domestic product), a dramatic increase in unemployment and a fall in the standard of living."

The former ECB head also said a Greek exit would deal a blow to the credibility of the European project and add to geopolitical risks at a time of instability in neighbouring regions, citing conflicts in the Middle East and Ukraine.

"Together with the geopolitical risk you'd have a certain loss of credibility of Europe," Trichet said. "The authority and the influence of Europe will suffer."

[Reuters]