The Greek aid deal is a turning point in the crisis that shows suggestions of a euro zone break up and Greek default are absurd, a top European Central Bank policymaker said on Thursday.
Speaking in Japan, ECB Executive Board member Lorenzo Bini Smaghi said the deal for joint EU/International Monetary Fund financial support agreed by euro zone leaders over the weekend was a vital step.
This announcement makes it clear what the euro area authorities have said since many months, i.e. that a scenario of default and exit from the euro area, which some market participants and observers had toyed with, was simply absurd.
He added that the problems had exposed the shortcomings of Europe's political decision making.
Vague statements that some event, such as a default, will not occur, are not sufficient to calm the markets. Concrete actions are needed. This was not fully understood over the last few months, he said.
This experience should now be used to create a more efficient decision making process within the euro area aimed in particular at preventing similar situations from occurring in the future and eventually at solving them more efficiently.
He warned that as speculators increase bets on events such as default, problems mount, upping the chance of it actually happening.
Bini Smaghi, one of the ECB's six-strong Executive Board also stressed the need to cut the size of the financial sector.
Given the obvious negative impact of an excessively large financial industry, we keep asking ourselves whether limits should be imposed on the size of the financial sector itself ... The answer to this question is yes.
A financial sector which goes beyond a certain threshold (or breaking point) can harm the economy and society as a whole, he said.
To read speech please click: http://www.ecb.int/press/key/date/2010/html/sp100415.en.html)
(Reporting by Marc Jones, editing by Mike Peacock)