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ECB's Constancio says 'worst-case' Greek scenario will be avoided

FRANKFURT (Reuters) - European Central Bank Vice President Vitor Constancio said he was confident Athens and its creditors will agree a deal to avoid Greece leaving the euro zone. Greece is in talks with its international lenders on a deal that will unlock more bailout aid. But progress has been painfully slow as its leftist-led government is resisting cuts in pensions and labor reforms that would clash with its pledges to end austerity. "I am ... absolutely convinced that the worst-case scenario will be avoided," Constancio told Dutch newspaper Het Financieele Dagblad in an interview published on Monday. "Everyone acknowledges that the degree of stress and vulnerability in the euro area has totally changed. There are no signs of contagion," he added, suggesting the ECB's bond buying program had eased concerns that Greece's problems might spread to other euro zone economies. Constancio said the ECB was also sufficiently protected from financial losses in the unlikely event of a 'Grexit' or Greek exit from the euro zone. "The Eurosystem (the ECB and the national central banks) has lent a total of some 110 billion euros to Greek banks. But the risk on just over 70 billion euros of that amount has been shifted to the Greek central bank," he said. "We jointly bear the risk on the rest of the amount. But bear in mind that collateral has been provided. We are talking about securities that are not linked to the Greek sovereign ... This should offer sufficient protection,” he said. Constancio said that with inflation now in negative territory, the ECB had no intention of prematurely ending its quantitative easing program aimed at pumping around 1 trillion euros ($1.1 trillion) into the financial system by September 2016. "Why should we think of discontinuing it when inflation is negative and inflation expectations are nowhere near our medium-term goal of close to 2 percent?,” he said in the interview. He said the central bank would not go as far as trying to boost the economy by handing out cash to households or directly paying for large public projects. "Helicopter money has had different meanings in various contexts, from giving money directly to households to financing of public infrastructure. But all these options would bring us very close to pursuing fiscal policy. And that’s what we cannot do," he told the paper. (Reporting by John O'Donnell and Hugh Lawson; Editing by Andrew Heavens)