Greece euro exit could hit Spain, Italy, Zoellick assures

A decision by Greece to leave Europe's common currency zone would raise big questions about the impact on Spain, Italy and other euro zone countries with big debt loads that are undergoing structural reforms, the head of the World Bank said on Wednesday.

The euro zone crisis poses the biggest threat to the global economy, World Bank President Robert Zoellick said in a question-and-answer session at the Washington Economic Club.

"The core question will be not Greece, but Spain and Italy," he said. If Greece decided to leave the euro zone, the ripple effects could be very damaging, reminiscent of the Lehman Brothers collapse in 2008.

"Where the danger comes in is when events come and they start to affect confidence and you get illiquidity moments, and illiquidity moments start to mean something begins to tumble, whether it's companies or banks," he said.

European leaders need to find ways to get ahead of the problem and provide support to Spain and Italy, which are undertaking very difficult reforms, he said.

"The key issue you have got to come to terms with is if you are to have medium-term reforms, you are going to need some medium-term assurance for investment," he said.

This could be provided through eurobonds issued through the European Stability Mechanism, utilizing the resources of the European Investment Bank or some other mechanism. "Those are for the Europeans to decide. But I think they are going to need a funding match with the reform match."

European Union leaders this month are due to discuss a Growth Pact which is expected to include infrastructure investment funds and some flexibility on meeting deficit targets for countries in recession.

But Greece is in turmoil and headed for fresh elections on June 17 after political parties failed to form a new government. Voters on May 6 resoundingly rejected the austerity measures required under an EU/International Monetary Fund bailout program, leading to increasing discussion that Greece will be forced to leave the monetary union.