Greek euro exit would have 'dramatic' consequences, says EU

(STRASBOURG) - A Greek default or exit from the eurozone would have "dramatic" consequences for Greece as well as for Europe and the rest of the world, the EU's economy chief said on Wednesday.

"A default or exit of Greece from the eurozone would carry dramatic social, economic and political costs, not only for Greece, but also for euro area member states, other EU states, as well as global partners," EU Economic Affairs Commissioner Olli Rehn told the European Parliament.

Rehn's warning follows growing expectations in Europe, despite official denials, that Greece is heading towards a bankruptcy which would force it to default on part of its massive debt mountain.

German Economy Minister Philipp Roesler, who is also vice chancellor, caused a stir this week by writing in an opinion column in German daily Die Welt that Europe could no longer rule out an "orderly default" for Greece.

German Chancellor Angela Merkel subsequently told a radio programme that the top priority for policymakers was to avoid an "uncontrolled insolvency" for Greece.

Rehn urged eurozone states swiftly to approve a second bailout for Greece, which was agreed on July 21 but has been held up by concerns raised by Finland, Slovakia and the Netherlands.

"I cannot stress enough the importance of the swift implementation of the decisions taken," he said.

Rehn also urged for rapid approval of a decision to expand the powers of the eurozone's rescue fund, the European Financial Stability Facility (EFSF), allowing it buy bonds of distressed nations in the secondary markets.

"By increasing the flexibility and effectiveness of the EFSF ... we can act earlier and more effectively to ensure financial stability in Europe," he said.

"Therefore the ratification of the agreed reform of EFSF in member states is a very clear and urgent priority."

Rehn stressed that another answer was deeper economic integration in Europe.

"We must be able to decide more quickly and more effectively and we must be much better in the implemention of our decisions in the European Union," he said.

"The current institutional structures are not sufficient to tackle the challenges that we are currently facing ... we need a new federative moment, and that moment must start today," he said, referring to a push for a federal EU.