Debt restructuring would be catastrophe, says ECB member

Any move by Greece to restructure its debt would have catastrophic effects, ruining its banks and crippling its economy, European Central Bank Executive Board member Lorenzo Bin Smaghi said on Thursday.

“According to our analysis, a debt restructuring would result in the failure of a large part of Greece’s banking system,» Bini Smaghi told Italian business daily Il Sole 24 Ore.

“The Greek economy would be on its knees, with devastating effects on social cohesion and the maintenance of democracy in that country,» he was quoted as saying.

“Ultimately it’s up to Greece to decide the way forward, given that it will suffer the worst consequences. But other countries must avoid pushing it towards a catastrophe.”

His comments come after German Finance Minister Wolfgang Schaeuble said Greece may have to seek debt restructuring if an audit in June questions its ability to pay creditors.

Greece would have to negotiate to ease its debt burden since creditors can?t be forced to take losses until Europe?s permanent rescue system for the euro starts up in mid-2013, Schaeuble told Berlin-based newspaper Die Welt.

?We will have to do something? if the review by the International Monetary Fund and European authorities in June raises doubts about Greece?s ?debt sustainability,? Schaeuble was quoted as saying. ?Then, further measures will have to be taken.?

Yields on two-year Greek notes climbed to 17 percent early on Thursday from as low as 6.62 percent in May 2010 after Greece?s bailout. The cost of insuring Greek sovereign debt closed on Wednesday at a record 1,054 basis points, according to CMA prices for credit- default swaps. The level implies there?s a 60 percent probability the nation will default within five years.

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