Deputy Prime Minister of Turkey Says Default Must Be Avoided

Deputy Prime Minister of Turkey Ali Babacan stated on Thursday that Greece should not be allowed to face a sovereign default because its massive debt.

Babacan emphasized that other Eurozone members could easily follow Greece once it declares that it cannot repay its debt and has to default. “The atmosphere of trust can be damaged very quickly. Once the defaulting on debt begins, you may not be able to stop it. Therefore the state’s defaults must certainly be avoided. Then there would be no serious problems in the European banks,” he said.

For Babacan, the European banks’ exposure to Greece’s crisis will be the real start of a domino effect. “If, however, no country defaults on its debt, then I think the European Central Bank will continue funding Europe’s banks. The ECB asks for collateral to do this and that collateral is mostly the government bonds in those banks’ portfolios. When a country defaults on its debt, then that collateral means nothing. This is why we say that a Greek default must be avoided,” he explained.

Babacan was also asked to comment on a possible Greek exit from the 17-nation Eurozone. The deputy prime minister explained: “what the eurozone needs today is further integration to develop a common fiscal policy”.

“Neither Europe nor the world can bear a political fragmentation within the European Union,” Babacan said. His comments echoed the statements of European Commission President Jose Manuel Barroso a day earlier.