A negotiated agreement to provide further aid for Greece is “much better” than a Greek exit from the euro, not just forthe country itself but for the wider euro zone as well, former Treasury Secretary Larry Summers told CNBC.
“It would be much better if negotiated agreements can be found that provide for substantial consensual debt relief for Greece and provide for substantial structural reform for Greece,” Summers said. “That would be the preferred avenue if it could succeed.”
Some critics have suggested the euro zone would be better off without Greece, and that the single currency could survive a Greek exit.
Summers said if Greece left the euro it could be “a major event, certainty for Greece.”
“The Greek banking system stability depends on it having access to the European Central Bank just as our banks’ stability depends on their having access to the Fed. If Greece is not part of the euro, they’re unlikely to have that kind of access and that would have consequences for the stability of the Greek banking system,” he said.
What it would mean for the rest of Europe would depend on what kind of precedent it set, he said.
“How it happened. Whether investors became concerned that other countries would leave the euro as well. If those concerns became pervasive, they could set off runs and be a very serious situation indeed,” Summers said.
But “if whatever happened was managed in a way where Greece was seen as separate and unique, then the consequences would be much less serious,” according to Summers.