ECB digs in heels over soft restructuring

The European Central Bank’s chief economist said a Greek debt restructuring would be a ?recipe for catastrophe? as he blamed ?vested interests? in Britain and the United States for fuelling market pressure on the country.

Juergen Stark told a conference in Lagonisi, south east of Athens, on Wednesday that the struggling eurozone country’s ?debt sustainability is insured? if it fully complies with its internationally monitored austerity program.

Asked about the markets’ hostility to Greek efforts, Stark said: ?This is not the view of all market participants, to be very clear. This is a discussion triggered from London and New York. I don’t know what is behind it – vested interests, people topping their books and so on. So it’s more complicated than just (saying) what markets expect.?

The Greek government was told by the European Union this week to take urgent measures to keep its

austerity program on target, as part of its commitments for the 110 billion euros package of bailout loans it is receiving from EU countries and the International Monetary Fund.

Stark said the restructuring option had not been properly thought through.

Stark’s comments underlined the split among European officials over whether Greece should consider delaying repayment of its crushing debt load.

Jean-Claude Juncker, head of the eurozone finance ministers group, held the door open Tuesday to what he called a ?reprofiling? of Greece debt – a voluntary extension of bond maturities.

Another top European Central Bank official rejected on Wednesday any so-called soft restructuring of Greek debt, warning it could do much damage.

Lorenzo Bini Smaghi, an Italian member of the ECB board, said at an event in Milan: «I reject a soft restructuring option for Greece.”

He said: «I don’t know what it means and we have to be very careful in giving signals to the financial markets, as they can react.”

The ECB member said a soft debt restructuring could have serious consequences for Greece.

“It can have a negative impact on the banks of the country, because they will need to further strengthen their capital ratios but won’t have easy access to the market,» he said.

Bini Smaghi has warned several times over the last few weeks against restructuring the Greek debt, arguing that it would bring the country’s economy «to its knees» and would have negative consequences for the entire eurozone.

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