Greece debt negotiator urges less pressure on Athens

(WASHINGTON) - The man who represented banks in Greek debt writeoff talks urged less fiscal pressure on Athens Wednesday, warning that it could force a devastating Greek exit from the eurozone.

"The contagion effects on the rest of the Europe could be immense for Greece to leave the euro in a disorderly fashion," said Charles Dallara, who led the private sector side of talks that led to banks writing off more than 100 billion euros ($127 billion) of Greek debt in March.

He told the Institute of International and European Affairs in Dublin that a Greek pullout from the single-currency bloc would wipe out the capital of the European Central Bank.

But the price could also be another global recession, he said.

"The costs of Greece's departure for Greece, for Europe and for the global economy are likely each in their own way to be immense. For Greece it would mean most likely a period of hyperinflation, a further collapse in the economy."

Dallara, who heads the Institute of International Finance, a grouping of leading banks around the globe, said Greece's abandonment of the euro is not inevitable.

But he said Greece needed to be given time to sort out its political stalemate, with less external pressure from outside for austerity.

"Instead of building fiscal credibility, this has actually led to an undermining of fiscal credibility."

"Certainly the pace of fiscal consolidation that has been injected into the programs of Greece, and I would say as well Portugal and Spain, has not been productive. Each round of budget cuts has contributed to another round of economic weakness."

He criticized Greece's main public creditors, the European Union, the European Central Bank and the International Monetary Fund, as being too focused on austerity.

The IMF's specialty "is short-term budget cutting, not medium-term structural reform," said Dallara, himself a veteran of the board of the global crisis lender.

He said Greece has already "done a remarkable job" in economic and fiscal reforms, and can be expected to keep at the changes.

"Greece's departure from the euro is far from inevitable."

"Greece's future is pivotal to the rest of Europe... we need to allow a little time for the Greek people to find their way forward."