CERNOBBIO, Italy (MNI) – The Eurozone-IMF aid deal for Greece
agreed by European leaders Thursday night is not an “ideal” solution,
but at least a decision has finally been taken that should help assuage
markets, European Central Bank Executive Board member Lorenzo Bini
Smaghi said in a television interview Friday.

Asked by CNN outside a conference here whether the IMF’s
involvement in a Greece rescue package constituted a failure for the
Eurozone, Bini Smaghi replied, “This is the reality…Not an ideal, best
solution, but this is what we have.” He attributed the aid agreement,
hammered out principally between Germany and France, to “politics.”

“I think now what is important is that we have a decision and a
solution,” Bini Smaghi added. He noted that since the deal was
announced, the pressure in markets had eased and spreads on Greek debt
had come down.

Bini Smaghi expressed hope that the Eurozone would be able to deal
with such crises on its own in the future. “We have the means, we have
the conditionality. What we don’t have is a mechanism to [offer] support
financially,” he said.

“What is good is that the summit came out with an indication that
we have to work on this in the next few months,” he added. We have a few
months to work on that and strengthen surveillance. We need to avoid
that this happens again.”

Just Wednesday, Bini Smaghi came out strongly against any financial
IMF involvement in aid to Greece, saying it could tarnish the
credibility of the Eurozone and hurt the euro itself. His remarks today
represent a considerable softening of his tone – and a nod to political
reality.

In an interview with Bloomberg this afternoon, just a few minutes
after he spoke with CNN, Bini Smaghi reiterated that a purely European
solution would have been preferable. “But sometimes the second best
solution is the most realistic,” he said. “We have to make it work.”

Asked by Bloomberg whether dangling the possibility of aid could
lead to a moral hazard problem in Greece, Bini Smaghi argued that wasn’t
the case, since moral hazard would imply Greece wasn’t going to make the
hard decisions necessary.

The Greek government has already committed to a “tough” austerity
plan aimed at cutting its public deficit by four percentage points of
GDP this year, he noted. “They have to do it. They have no choice.”

He also said he wasn’t concerned about a moral hazard problem with
regard to other high-deficit countries, such as Spain or Portugal.
“Nobody wants to get into the same situation as Greece,” he said.

Bini Smaghi also said — in the CNN interview — that following the
deal struck Thursday, “the worst is over” with regard to the Greek
crisis.

The plan unveiled Thursday would only be used as a “last resort” in
case Greece can’t secure sufficient financing on financial markets.
According to reports, about one third of the funding would come from the
IMF and two thirds from Eurozone countries in the form of bilateral
loans.

No details were provided on how much the aid might ultimately be
worth or what the interest rate on it would be — other than it would
not be “concessional” and would presumably carry some penalty above
market rates.

In order for the aid to be triggered, all Eurozone countries would
have to agree unanimously. That means Germany, which has been the most
resistant to aid for Greece, would hold effective veto power.

Asked by CNN if this was a concern to him, Bini Smaghi said, “We
all want to avoid a crisis.”

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