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Contagion Risk Is Considerable, Liikanen Tells Talouselaemae

Europe’s debt crisis may spread “fast” across the single currency area, European Central Bank council member Erkki Liikanen told magazine Talouselaemae.

“Everyone who monitors the financial markets knows the contagion risk now is considerable,” Liikanen said in an interview published today by the Helsinki-based magazine. “Events since the spring 2010 show that the crisis is spreading fast from one market to the next.”

The Frankfurt-based central bank, which has bought Italian and Spanish bonds on the secondary market to ease pressure on their yields, has called for voluntary debt arrangements and warned enforced investor losses may endanger the stability of the 17-member euro area.

European leaders meet on Oct. 23 in Brussels to discuss a plan to avoid a Greek default, bolster banks and curb contagion.

“It’s good that central banks have learned to cooperate and work together to safeguard sufficient liquidity for the euro and the dollar,” Liikanen said. “Debt problems aren’t downplayed anymore and banks are better capitalized.”

Even so, increased sovereign debt leaves governments less room to maneuver, he said.

Asked whether it’s possible that the euro area might break up as a result of the crisis, Liikanen said: “It is not. Full stop.”

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