May 16, 2011
An extension of Greece's debt maturities would do little to solve the country's unfolding debt crisis, a top European Central Bank official said Monday, insisting that Athens press ahead with painful austerity measures to shore up its finances.
In a video interview with The Wall Street Journal that touched upon Greek's debt crisis and inflation in the euro zone, ECB Executive Board Member Lorenzo Bini Smaghi, warned that extending the maturities on Greek debt could lead to a credit event, and forecast that inflation in the bloc would stay above the ECB's sub-2% objective "for quite a few months."
"The problem is that the extension of maturities would not have a big impact on the sustainability of the debt and it would probably trigger some kind of credit event," Mr. Bini Smaghi said, when asked about a voluntary maturity extension for Greek bonds.
"It is very difficult to distinguish between just a lengthening of maturity and a credit event," he said, though he added, "This kind of thing has to be studied."
Financial markets have increasingly come to the conclusion that a restructuring of Greece's debt is inevitable, reasoning that even if Athens successfully implements its economic reform and fiscal austerity promises, it faces many years of subpar economic growth. Some analysts see a maturity extension as an interim step toward an eventual reduction in the face value of Greek bonds, a measure known as a haircut.
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