The European Central Bank’s injection of cheap money into the European banking system last December has taken the pressure off the euro zone politicians for the moment, but they still have to take further action, a German economist told CNBC.
“The central bank is for liquidity, it’s not for last resort. If you have made mistakes, as the Europeans have, it’s up to us and the politicians on a democratic basis to make the rescue,” Norbert Walter, the former chief economist of Deutsche Bank and managing director of Walter & Daughters, told CNBC.
He spoke ahead of the ECB governing council’s meeting on Thursday, at which the central bank is expected to hold interest rates at their current historic lows and give some more clarity around its second major refinancing operation in less than three months.
European banks took up 489 billion euros ($648 billion) in the first three-yearlong-term refinancing operation (LTRO) in December, spurring a stock market rally in 2012 so far.
Yet volumes have remained low as banks have held off investing heavily in the markets until there is more clarity on the future of the euro zone.
The date for Greece’s politicians to agree on a deal with their creditors that will avert the possibility of an uncontrolled default has shifted many times in the past two weeks.
"If Greece is not to default, they need to listen to others who have given them money to survive in a reasonable way," he said, adding that they would have a "difficult time" if they did default.
He believes that there is a 20 percent chance that Greece will leave the euro zone, and that the euro zone can stay together without Greece.
“There should be a blueprint for default in the euro zone, but it should be clear that contagion will not be welcome. We have to look at Latin America and Asia to see what will happen if you don’t do it in an orderly way,” Walter said.