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Nowotny Says ‘More Painful’ Greek Default Must Be Avoided

European Central Bank Governing Council member Ewald Nowotny said a Greek default would be more difficult for Greece than living through the austerity that policy makers have demanded to provide emergency loans.

“You won’t get around the reforms,” because “a default is even more painful for the people,” Nowotny told Austrian state radio station ORF in an interview today. A default “is exactly what we want to avoid in the interest of the entire European economy and the European internal market.”

Nowotny said a French proposal for involving creditors in the rescue was “very interesting” and should be coordinated in Europe. Representatives of German banks and insurers hammered out a draft proposal to present at a meeting today with Finance Minister Wolfgang Schaeuble and top industry executives, including Deutsche Bank AG head Josef Ackermann.

“For some countries, in particular for Germany, this is an important aspect to gain political consensus,” Nowotny said. “What’s important is that there is a joint European solution” and that “is exactly what is being talked about right now.”

Having clinched victory on a bill setting out his strategy for budget cuts, Greek Prime Minister George Papandreou must today win a second ballot to execute measures ranging from tax increases to asset sales. The vote takes place as a general strike and protests of more than 20,000 people have paralyzed central Athens for the past two days.

The Greek parliament’s approval of the cuts yesterday was “a positive step, but it’s clear that more steps need to follow,” Nowotny said. In particular, state asset sales “must be quickly implemented,” he said.

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