Bloomberg
May 10, 2011
European Central Bank officials warned of catastrophic consequences if Greece is allowed to restructure its sovereign debt.
“Default or debt restructuring is a dramatic economic and social event for the country which experiences it -- I would call it political ‘suicide’ -- which leads many into poverty,” Executive Board member Lorenzo Bini Smaghi said in Florence today. Fellow board member Juergen Stark said restructuring “wouldn’t be a solution to the problems that Greece needs to overcome.”
Concern at the Frankfurt-based ECB is growing after Greek bond yields soared to all-time highs on speculation the government will be unable to meet its refinancing needs under the conditions of its current 110 billion-euro ($158 billion) bailout package. Greece’s credit rating was yesterday cut two levels by Standard & Poor’s, which said further reductions are possible as the risk of default rises.
“The ECB is fighting to keep politicians away from the restructuring debate,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “They are worried that people are starting to consider it in important capitals.”
The strategy may be working. Germany, which last month indicated a restructuring was possible, yesterday said extending further aid to Greece may be preferable.
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