Trichet says a Greek exit from euro worst option

“We created the euro to achieve the single market for the prosperity and stability of Europe,” he told a news conference at the Ambrosetti Forum, an annual gathering of political and business leaders on the shores of Italy’s Lake Como. “The national governments have to take care of their own national competitiveness within the euro area,” he also said.

European Union antitrust chief Joaquin Almunia said Greece is dealing well with the strict austerity measures demanded by other European nations and the International Monetary Fund in exchange for a massive bailout package extended earlier this year. “I have full confidence in the reaction from ... Greek authorities, once the Greek package was agreed,” Almunia said. “According to our reports, the implementation of this agreement is taking place in an adequate way,” he said, also praising Greece’s plans to restructure its banking system.

Greece has been trying to pull itself out of a debt crisis that nearly led to default earlier this year. Athens sought help from the International Monetary Fund and the eurozone and is currently receiving rescue loans from a three-year 110 billion euro package. The bullish comments by top officials stood in stark contrast to the perspective of what appeared to be most experts attending the conference.

On Friday, University of Munich economics professor Hans-Werner Sinn said Greece’s problems were long-term, outlining three options: the world can either subsidize Athens indefinitely; force an even greater degree of austerity that actually risks “civil war”; or encourage Greece to restore its drachma currency despite the domestic banking collapse that could well result.

Unlike Trichet, he suggested that Greece’s leaving the euro which would be very complicated procedurally and unprecedented was the least bad option. He also noted that bond spreads, the difference between the cost of borrowing for troubled countries such as Greece and solid ones such as Germany, have swiftly returned to the startling levels that preceded the Greek bailout in May.

New York University economist Nouriel Roubini argued that “a trillion dollar bailout has not patched things over,” referring to the even broader package cobbled together by the IMF and EU four months ago, which aimed to not only stamp out doubts over Greece’s solvency, but also prevent the crisis of confidence from spreading to other troubled eurozone countries like Spain. Some experts attending the conference urged a devaluation of the euro, arguing that its current value, almost $1.3,  is too high and is undercutting exports and harming European competitiveness. Trichet rejected that, noting that the euro’s initial value, when it was first created in 1999, stood at $1.18 before losing around 40 percent several years later when it achieved widespread use.