Orphanides: Greece speculation harming euro zone April 20, 2011
Any form of Greek restructuring of its debt mountain would harm the country and could trigger contagion throughout the euro zone, ECB Governing Council member Athanasios Orphanides said in an interview.
Orphanides also said mounting speculation in financial markets that Greece will have to renegotiate the terms of its public debt was damaging the euro area, and said the terms of an IMF/EU bailout, while tough, were appropriate.
"Under the circumstances, restructuring would be quite damaging to the Greek economy," he told Reuters. "In addition, I believe it would be quite damaging to the euro area overall because of the possibility of contagion effects.
"Since restructuring is both undesirable and unnecessary I believe it is not helpful for officials in the EU to keep bringing it up."
Restructuring could be avoided as long as the Greek government -- which took a 110 billion euros bailout last May -- continued to meet austerity programme targets and had support from its EU peers.
"Support from other member states is critical," Orphanides said.
Financial markets are increasingly convinced Greece will have to renegotiate the terms of its public debt, believing its economy cannot grow fast enough to service a burden that is set to swell to almost 160 percent of national output.
Greece's debt load of 325 billion euros ($468 billion), at the end of 2010, is nearly double the level most economists see as sustainable, and far bigger than the debt pile of Argentina when it defaulted in late 2001. The debt is expected to rise to 340 billion at the end of 2011.
"This public discussion and market speculation is ... quite damaging to the euro area overall," Orphanides said.
NOT SELF-FULFILLING
Despite official aversion, the idea of some form of "voluntary" restructuring is gaining momentum among some European officials -- a scenario under which bondholders would agree to roll over on their holdings next year or extend their maturities, possibly in combination with buying of Greek bonds on the primary market by the EU's rescue fund.
Orphanides dismissed suggestions that market speculation of a restructure could gain enough momentum to force it, saying Greece could count on the political support of its partners.
"In the case of a euro area member state, and Greece is a euro area member state, talk of restructuring cannot become a self-fulfilling prophesy in the same sense that could have been the case for other countries that are not part of the European Union.
"The reason for that is very simple; in the European Union a member state can count on the political support and solidarity from other member states."
In Greece itself, restructuring talk has gained ground within a public jaded by austerity measures and having to face painful cuts in public sector salaries and pensions.
A lot of public frustration at the measures was justified, said Orphanides, who is half-Greek.
"At the same time I trust that now the situation is clear; there is much better information about the necessary adjustment and the Greek people will persevere," he said.
(Financialmirror.com)
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