ECB's Papademos happy with EU Greece deal

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Lucas Papademos, vice president of the European Central Bank, said on Saturday the EU's latest agreement on Greece should allay concerns about a sovereign debt crisis in Europe.

Papademos told Reuters on the sidelines of a conference at the US Federal Reserve that he was pleased by the outcome.

"With regards to the deal I thought that the decision of the heads of state, the agreement they reached was very satisfactory," Papademos said.

"I believe also that the facility that has been established in principle is not likely to be activated, taking into account the fiscal stability program of the Greek government," he added.

Euro zone leaders received a cautious stamp of approval from financial markets for their agreement earlier this week to create a safety net with the International Monetary Fund to help debt-ridden Greece.

Despite widespread concerns among investors that Greece's heavy debt profile is mirrored by many of its European counterparts, especially countries like Spain and Portugal, Papademos said he was not worried the problems would spread.

"The risk of contagion is very small," he said.

Greece's troubles first flared late last year, when the Greek government revealed its budget deficit had reached the equivalent of 12.7% of gross domestic product, more than double the previously announced figure.

The crisis has renewed public scepticism of Wall Street banks, after it emerged that large investment firms may have been involved in concocting the complex transactions that allowed Greece to hide the true nature of its debts.

In the meantime, Greece has become an unlikely focus of international financial markets, with every twist and turn in that country directly affecting investor appetite for risk.

The concerns helped push the euro to its lowest level in 10 months.

Some economists, like University of Maryland's Carmen Reinhart, have argued that European nations are in a predicament where the budget cuts that are needed to fix their fiscal situation are also likely to derail growth, thereby negatively affecting the budget.

But Papademos said he saw no such dilemma.

"The reason that governments are reducing their deficits is presumably to strengthen the long-term growth of the economy," he said.