Eurozone debt crisis could spread, ECB executive warns

30th March 2011, Comments 0 comments

There is a risk of the eurozone sovereign debt crisis spreading from countries on its rim to others at its core, European Central Bank Executive Board member Lorenzo Bini Smaghi warned Wednesday.

The 17-nation area's financial system "continues to face several important risks," including bank funding vulnerabilities, the possibility of fiscal imbalances affecting one another and threats to economic growth, he said in a speech given in Moscow.

A copy of his address was posted on the ECB's website.

At present, the debt crisis that erupted in Greece is "limited to a small number of euro-area countries," but "potential contagion to other European Union or euro-area countries is not insignificant," the ECB executive said.

He also voiced surprise at "how quickly some of the lessons of the crisis are being forgotten."

With conditions in the future set "to be just as challenging as recent years," Bini Smaghi noted that "central banks will be required to act as anchors of monetary and financial stability in a rapidly changing world."

The ECB is expected to raise next week its benchmark interest rate from the current record low of 1.0 percent to keep consumer prices from spiraling higher.

© 2011 AFP

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