European Central Bank rules out Greek debt restructuring
Lagonissi, Greece (AHN) – The European Central Bank rejected on Wednesday a proposal to restructure Greece’s debt.
ECB Executive Board Member Juergen Stark said a Greek debt restructuring would only create a catastrophe because the move would damage the banking system.
Lorenzo Bini Smaghi, another ECB board member, said the solution to Athen’s financial problems to reduce the country’s debt without paying for it will not work.
The ECB announcement clashes with a proposed solution by European Union political leaders who floated this week the idea of prolonging Greece’s debt repayment schedule to meet the terms of last year’s $156 billion (EUR 110 billion) bailout.
On the same day the International Monetary Fund pushed for Greece to fast track its economic reforms to avoid hampering international efforts to reduce Athens’ huge debts.
According to IMF mission chief to Athens, Poul Thomsen, the May 2010 emergency bailout package extended to Greece was apparently failing. Thomsen warned that the program will not remain on track unless there is a determined reinvigoration of structural reforms to be put in place in the coming months.
Greek Finance Minister George Papaconstantinou is considering laying off some government workers and is seeking a dialogue with the opposition to find ways out of the financial crisis.
Eurozone finance ministers are in favor of a soft restructuring for Greece, in addition to more measures put in place by Athens, particularly the sale of some state assets. Soft restructuring would extend the maturity of existing bonds, but the principal and the interest rates would not be changed. The proposal seeks to prevent a chain reaction of claims linked to credit default swaps.
However, EU Economic and Monetary Commissioner Olli Rehn said holders of Greek bonds would voluntarily accept delayed payments only if Greece makes extra budget cuts and start assets sale worth $71.3 billion (EUR 50 billion).
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