Rodrigo Rato, the former International Monetary Fund managing director who resigned as executive chairman of Bankia SA last week, said Europe is not prepared to stem the consequences of Greece exiting the single currency.
“If right now you open the door to the idea that the euro is not a one-way bet, that countries can get out for different reasons, I don’t think we’re prepared for the consequences,” Rato said in a panel discussion in Frankfurt late last night. “I think the consequences could really be unmanageable.”
The failure of Greek lawmakers to form a government after inconclusive elections this month has fueled speculation about the country abandoning the euro. A Greek exit could be “technically” managed, European Central Bank Governing Council member Patrick Honohan said on May 12.
“It would be a huge European mistake and it would be a pity to start the century with a huge European mistake,” Rato said.
Rato also said that it’s impossible to shield Spanish banks from the impact of economic recession.
“The problem with the Spanish banking system is that with a country in a five-year recession that nobody expected, balance sheets are deteriorating much more than anybody expected,” Rato said. “You can’t insulate bank balance sheets from the business cycle.”