Washington: The International Monetary Fund`s chief economist warned Tuesday that Greece`s negotiations with official creditors could still fail and force it from the eurozone, hitting global financial markets.
But Olivier Blanchard said that would also provide an opportunity to advance the eurozone toward a stronger fiscal and political union.
"A Greek crisis cannot be ruled out, an event that could unsettle financial markets," Blanchard said in a press conference on the IMF`s new global economic outlook.
He said that the IMF, which is taking part in the talks between European Union negotiators and Athens, hopes for a deal that would allow Greece to obtain new bailout financing.
That would avoid Greece defaulting on its debt and, in the worst case, leaving the euro area.
"We very much want to come to an agreement and we hope we will," he said.
"An exit from the euro would be extremely costly for Greece, would be extremely painful."
If it came to that, Blanchard added, the single-currency area would suffer less due to firewalls already built up to minimize the impact.
"The rest of the eurozone is in a better position to deal with a Greek exit."
Even so, "it would still not be smooth sailing."
But Greece`s exit would also heighten the need for the euro area to make progress beyond just a currency union, Blanchard said.
"If it were to happen, I think the way to reassure markets and make progress is actually go further, use the opportunity to make progress in term of a fiscal union and a political union. This would be clearly the right moment to do it."
