Business and Finance

Greece should remain in the euro region where its problems “will be unequivocally easier to solve,” rather than allowing a new currency to devalue, pushing up inflation and interest rates, the central bank governor said.

A new currency would not be like “waving a magic wand,” George Provopoulos said in an article for the Financial Times. A weakened currency could increase the cost of imports, stoking inflation, and boost the cost of servicing public debt.

Concern that Greece’s government will struggle to tame the European Union’s biggest budget deficit this week pushed the yield premium investors demand to hold the nation’s debt instead of German bunds to the highest since the euro’s debut in 1999. Finance Minister George Papaconstantinou said yesterday that Greece won’t need a rescue package to reduce its debt.

“It will be immensely less costly for Greece to eradicate its problems from within the euro zone,” Provopoulos wrote. “Greece will not be tempted by these short-term options, but will undertake the necessary, bold adjustments.”

Greece’s debt has contributed to a slide in the euro against the U.S. dollar. The euro traded at $1.4124 at 3:01 p.m. in Sydney, close to its lowest level in almost six months.

‘Homer’s Sirens’

The idea of Greece leaving Europe’s monetary union “is based on flawed reasoning,” Provopoulos said fast cash online. “Those who suggest Greece might leave the euro zone are like Homer’s sirens.”

Prime Minister George Papandreou has said that the “unprecedented” crisis in Greece has led to “discussion on the euro, if the currency is stable.” He said there is “not one day to lose” in bolstering the nation’s finances.

Finance Minister Papaconstantinou denied a report yesterday in EuropeanVoice that EU officials were looking into a possible loan to help Greece tackle its deficit, the highest in the region at 12.7 percent of economic output. Amelia Torres, the spokeswoman for EU Economic and Monetary Affairs Commissioner Joaquin Almunia, said she wasn’t aware of any talks on a loan. A spokesman for the European Central Bank declined to comment.

Germany said it won’t support any EU loan to help Greece cut its deficit. “Greece must solve its problems through its own efforts,” German Finance Ministry spokesman Michael Offer said yesterday in an e-mailed statement.

While Greece’s problems are “extremely serious,” its economic future is “unwaveringly tied to the mast provided by the euro,” Provopoulos wrote in the Financial Times. “It will be unequivocally easier to solve these problems from within the euro area,” he said.

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