Belgian minister warns of Lehman-like Greece domino effect

17th June 2011, Comments 0 comments

Belgian finance minister Didier Reynders warned on Friday that Greece must be bailed out again, otherwise Europe risks bigger problems from a domino effect.

Reynders told Belgian RTL radio that the danger of contagion could be compared to the financial crisis that ensued after the collapse of US bank Lehman Brothers in the autumn of 2008, which triggered the world's worst recession since the 1930s Depression.

As euro currency partners and the International Monetary Fund try to assemble a second bailout worth almost as much as last year's 110 billion euros ($156 billion), Reynders said that taxpayers, confused about why governments felt the need to repeat the exercise, had no choice.

Asked if the knock-on effects of Greece teetering on the brink of bankruptcy could trigger a new financial crisis, Reynders said: "We can indeed fear it because that's what we experienced in 2008.

"Remember -- the collapse of an American bank, Lehman Brothers. Everyone said 'OK, a bank's gone under.' But that triggered a collapse in confidence right through the financial sector and banks could no longer borrow money amongst themselves. And we saw what that meant."

Reynders warned that the processes which took effect then remained a danger now.

"If we turn our backs on Greece, it won't be able to repay its debts to banks and therefore savers in our country (and others)," he said.

"The domino effect will begin and there will be consequences in Ireland, in Portugal and perhaps even here (in Belgium).

"To make it clear: if you don't repay your debts, who will lend you money the next time you go looking? Greece needs money. Many European countries need money. We have to intervene."

Reynders reiterated that those banks, pension funds and insurers which would have much to lose should Greece default on about 350 billion euros of debt, should share the burden of the new bailout with taxpayers.

European Union governments are still discussing how much the private sector can be expected to accept new terms for old debts without a new arrangement being viewed as a default, and therefore triggering the negative chain reaction to which he referred.

German Chancellor Angela Merkel, who wants banks to contribute up to one third of the new rescue package, and French President Nicolas Sarkozy, who has already seen French banks holding big Greek debts downgraded amid fears of the cost to their balance sheets, are meeting on Friday to try and find a compromise before an EU summit next week.

© 2011 AFP

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