Greek Restructuring Rejected by ECB Officials

Bloomberg
May 18, 2011

European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis.

“A Greek debt restructuring is not the appropriate way forward -- it would create a catastrophe” because it would damage the banking system, ECB Executive Board member Juergen Stark said today in Lagonissi, Greece. Fellow board member Lorenzo Bini Smaghi said in Milan that “a solution for reducing debt but not paying for it will not work.”

European Union finance ministers for the first time this week floated the idea of extending Greece’s debt-repayment schedule as the nation struggles to meet the terms of last year’s 110 billion-euro ($156 billion) rescue. EU officials say that Greece won’t be able to return to markets and sell 27 billion euros of bonds next year as scheduled under the bailout, leaving them searching for alternatives to avoid a default.

The yield on Greece’s 10-year bond rose 17 basis points today to 15.8 percent, more than twice the rate at the time of the bailout a year ago. The country’s two-year bond yields almost 25 percent.

The cost of insuring the debt of Europe’s most-indebted nations against default rose today on concern they will have to restructure. Credit-default swaps on Greece surged 66 basis points to 1,335, Ireland rose 20 to 630 and Portugal jumped 20.5 to 626, according to data provider CMA.

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