FRANKFURT (MNI) – A restructuring of debt by Greece is not a
solution to its problems and would not be even if the fiscally troubled
country were to run a primary surplus and implement the necessary
structural reforms, European Central Bank Executive Board member Juergen
Stark said in an interview published Sunday.

Stark told Greek newspaper Kathimerini that the program of fiscal
consolidation Greece is required to implement as a condition of its
bailout loans is not even very tough by international standards.

A debt restructuring “would create enormous problems” and would be
warranted only if “debt sustainability is not ensured,” Stark asserted.

However, Greece will be solvent if it implements the program to the
letter, so that already means there should be no restructuring. But the
negative effect for Greece itself of a debt restructuring is another
reason why there shouldn’t be one, he said.

“With a debt restructuring or reprofiling, Greece runs the risk
that it will not gain access to the markets over a reasonable time span,
and if it is regained, because of this reprofiling or restructuring,
Greece will have to pay in the future a higher risk premium,” he said.

Greece must continue consolidating and run a primary surplus,
rather than restructure its debt and weaken the incentive to implement
needed structural reforms, Stark urged.

“So 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,” he concluded.

Even assuming Greece manages to run a primary surplus and institute
necessary reforms, a debt restructuring would remain unwarranted, Stark
said, “because once you reach a primary surplus you stabilise your
debt-to-GDP ratio and you are able to reduce it further. And you also
have a privatisation plan in place.”

In the end, he asserted, “there is nothing that can avoid” the need
for structural reforms and fiscal consolidation.

While conceding that “Greece is in an extremely difficult
situation, [that] this is an emergency case” involving pain for
citizens, Stark nonetheless argued that “there is no especially tough
treatment for Greece from the European or IMF side.”

“It is a challenging, demanding programme but it is a realistic
one, taking into account the extremely serious situation Greece is in,”
the ECB’s chief economist said. “Maybe according to Greek standards it’s
very tough, but according to European and international standards, it’s
not.”

Greek authorities must act to avoid the “slippages” that now pose a
threat to their adherence to the program, Stark said. All creditors and
partners “expect that the programme [be] implemented as agreed. In the
case of any slippages, this has to be corrected.”

In other comments, Stark reported that “we see for the euro area as
a whole significant improvement in the functioning of money markets, so
banks trust each other more and this is a good sign. The recourse to our
operations has declined significantly. This is a market driven process,
in the context of the phasing out of our non-standard measures.”

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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