Papademos clarifies comments on euro exit scenarios

Former Prime Minister Lucas Papademos has sought to clarify comments in which he appeared to suggest that some countries and institutions were preparing contingency plans for a Greek exit from the euro.

In his first interview since leaving office this month, Papademos told the Wall Street Journal that he was firmly against a return to the drachma but that he could not rule out the fact that other might be preparing for such a development.

"Although such a scenario is unlikely to materialize and it is not desirable either for Greece or for other countries, it cannot be excluded that preparations are being made to contain the potential consequences of a Greek euro exit,» he said.

Papademos added that the possibility of Greece leaving the euro was ‘real’ and that Athens had to stick to the terms of its bailout to remain in the single currency.

"European political leaders have sent a clear message comprising two parts: Greece should remain in the euro zone and the country should respect its commitments. Hence, the risk of Greece leaving the euro is real and it depends effectively on whether the Greek people will support the continued implementation of the economic program,» Papademos told the WSJ.

"I share the view that if Greece defaults and exits the euro, the consequences for the euro zone—its financial system and real economy—will be profound and the associated cost will be significant and far-reaching. It will also affect the economies of other countries outside the euro zone."

The euro slipped to a 21-month low in Asian trading after Papademos’s comments were published.

However, speaking to CNBC shortly after the comments were made public, Papademos clarified that he had no specific knowledge of countries or institutions planning for a euro exit.

Papademos told CNBC he could not “exclude the possibility» that countries are making preparations due to increased fear of such an event. Papademos believes Greece leaving the euro is an event that's «unlikely to materialize,» and also called it an «unwanted scenario,» the channel reported via its website.

"Overall, the economic consequences…would be catastrophic. Moreover, the adverse political and social implications of an exit from the euro would also be profound and long-lasting,» Papademos told the WSJ.

"Some calculations I have seen suggest that inflation could accelerate to 30% or even to 50 percent, depending on the impact of such developments on inflation expectations and on the strength of the second-round effects of price increases on wages." 

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