ECB Stark: Greece Remains Solvent But Must Implement Plan
ATHENS -(Dow Jones)- Greece is capable of meeting its debt obligations, the chief economist of the European Central Bank said in a newspaper interview Sunday, if the country strictly adheres to the terms of its current reform program and pushes ahead with ambitious privatization plans.
In the interview with the Sunday edition of Kathimerini newspaper, Juergen Stark, who also sits on the ECB's interest rate-setting governing council, rejected the need for Greece to restructure or otherwise extend its public sector debt.
"This would create enormous problems. A restructuring or reprofiling is only justified in case debt sustainability is not ensured," said Stark in the interview, and which was confirmed by his office. "If the program is implemented one to one then Greece is solvent. And for this reason no restructuring should take place, but also taking into account all the negative impact it would have on Greece itself."
In May last year, Greece received a EUR110 billion bailout from its fellow euro-zone members and the International Monetary Fund in exchange for a program to cut its budget deficit and reform its economy.
Since then, Greece has cut its deficit by about a third, to 10.5% of gross domestic product last year. But investors remain unconvinced that the country can service its giant public sector debt, now about 150% GDP, amid speculation Greece may be forced into restructuring that debt.
The ECB has been vehemently opposed to any renegotiation of Greece's debt--despite support from some European leaders--fearing such a move could rebound on other debt stricken European countries such as Ireland and Portugal.
In a separate interview, fellow ECB governing council member Ewald Nowotny also rejected a Greek debt restructuring.
"The ECB has a clear position: this program is the path you must follow. I don't see an alternative," Nowotny told the Sunday edition of Greece's To Vima newspaper.
In his remarks, Stark cited the risks to Greece if it proceeded to restructure or reprofile its debt--even on a voluntary basis. According to Stark, the country would be locked out of international capital markets for a long period; would face higher risk premiums on its bonds; while a restructuring would reduce the incentive for Greece to proceed with tough structural reforms.
"This is not the easy way out from its current problems," Stark said. "This restructuring or reprofiling may be seen as a panacea, but in reality it creates more problems and does not help to resolve the existing ones."
The interview largely reiterates remarks made by Stark last Wednesday during a conference at the Lagonissi resort south of Athens.
At the conference earlier this week, Stark also threatened that any restructured Greek debt would no longer be accepted by the ECB as collateral by Greek banks in need of short-term liquidity. Given the heavy dependence of Greek banks on the ECB currently, such a move would be tantamount to bankrupting the Greek banking system.
In the Kathimerini interview Sunday, Stark didn't repeat the threat, but stressed the need for the government to step up its privatization plans.
"Privatization is really the key in this process," he said. "The program which was announced by the government to achieve EUR50 billion to 2015 is feasible and one should even be more ambitious."