ECB Governing Council member Axel Weber said on Thursday there was no acceptable alternative to rescuing Greece and urged quick approval of an aid package to prevent market upheaval and contagion to other states.
A leading German parliamentarian expressed confidence that the Bundestag could move quickly to approve aid despite deep reservations in Germany about helping Greece, as momentum toward a long-delayed rescue appeared to build.
The euro currency, which fell to a one-year low of $1.3114 on Wednesday, steadied in Asian trading, pushing back above $1.32, but yield spreads between benchmark German bonds and those of fiscally-strapped euro-zone countries like Spain remained under pressure.
Weber, who is president of the German Bundesbank, warned in German daily Bild that a Greek debt default would have "incalculable" consequences for financial markets and other states.
He also dismissed calls by some in Germany for Greece to be expelled from the 16-nation currency union, saying there was no legal basis for such a move and that it could spark huge economic and financial upheaval.
"In the current situation, the impact (of a Greek default) on financial markets and other states would be incalculable," Weber said. "Financial aid tied to tough conditions is for all parties concerned the best solution."
Greece is in discussions with the European Union and International Monetary Fund (IMF) on a multi-year rescue package that some officials have said could total up to 135 billion euros ($179.8 billion).
The world's leading financial policymakers, including IMF Managing Director Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet, gathered in Berlin on Wednesday and stressed the need for quick action to help the euro zone's financial weakling.
MERKEL BACKS RESCUE
After resisting a Europe-wide push for a quick rescue in past weeks, German Chancellor Angela Merkel has also thrown her weight behind a deal that EU members hope will prevent a debt crisis spreading to other euro zone members like Spain and Portugal.
Volker Wissing, finance policy spokesman for Merkel's coalition partners the Free Democrats (FDP), told ARD public television that Germany's lower house of parliament was capable of approving an aid deal quickly.
"A careful discussion and speedy discussion are not mutually exclusive," Wissing said.
Spain's Foreign Minister Miguel Angel Moratinos also stressed the need for quick action to help Greece.
Ratings agency Standard & Poor's cut Spain's credit rating on Wednesday, a day after downgrading Portugal and slashing Greece to junk status. The move hit the euro and European shares, underscoring the risks of contagion in the 11-year old currency zone.
"There isn't an alternative to dragging Athens out of this situation, because it's clear it could be dangerous for everyone," Moratinos told Italy's La Stampa newspaper.
"It's true that if you lose the market's confidence, it's difficult to recover it," he said.
Weber dismissed a discussion, launched by some German politicians, about forcing banks to accept a discount on their holdings of Greek bonds as part of any rescue package as "counter-productive."
He said Greece could "turn the corner" if it moved to implement reforms of its economy in a decisive and credible way.
But the ongoing risks to an aid package were highlighted by a German professor who has vowed to challenge the rescue in the country's top court.
"We expect that the Constitutional Court will not reject our suit, because our initiative has unbelievably big support," Joachim Starbatty, an economist and professor at Tuebingen University, told Czech newspaper Mlada Fronta Dnes.
