UPDATE 1-Euro restructuring could overshadow Lehman-ECB's Stark

Sat Apr 23, 2011 7:01am EDT

* ECB's Stark: risks of second Lehman if state restructures

* ECB opposes Greek restructuring, says would be damaging

* Stark says reform programmes mean debt will be repaid

BERLIN, April 23 (Reuters) - A sovereign debt restructuring in a euro zone state could trigger a banking crisis worse than that unleashed by the collapse of Lehman Brothers, ECB Executive Board member Juergen Stark said. In comments released on the Web site of German broadcaster ZDF on Saturday, Stark raised the spectre of the U.S. investment bank's famous collapse to underline the European Central Bank's opposition to Greece restructuring its mountain of debt.

"A restructuring would be short sighted and bring considerable drawbacks," he said. "In the worst case, the restructuring of a member state could overshadow the effects of the Lehman bankruptcy."

The bankruptcy of Lehman Brothers in September 2008 virtually froze credit markets and pushed governments into huge bailouts of their banking sectors.

Rising expectations that Greece will have to restructure a debt load that is one-and-a-half times its annual output has raised doubts about whether leaders can restore confidence in the 12-year-old euro currency experiment.

In the interview, Stark criticised the debate over Greece, which he said was being monitored closely but is not insolvent, and would be able to pay its debts after an international bailout agreed last May.

"The discussion about restructuring in the euro zone is based on false assumptions that one state or another is insolvent," he said.

"The EU and IMF adjustment programmes were based on analyses of the ability to repay debt," he said. "Aid would not have been disbursed if the ability to repay debt after the completion of the reform programmes could not be ensured." (Writing by Brian Rohan; Editing by Toby Chopra)

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Comments (1)
Bludde wrote:
The ECB should retain as Advisors an experienced Sovereign Debt secondary market trader. All of Latin America, including Chile, restructured as did most of Eastern Europe and the CIS. They are all alive and healthy. Greece not only can never repay its humongous debt burden but will slowly choke on its efforts to do so. Greek banks are moribund weighed down by impaired debt. Greece is now solely dependent on financing support from EU countries and sooner or later this channel will run dry as the cost of their own borrowings rises above what Greece pays them. Better to manage the inevitable than let market forces dictate… down the road..Greece needs to print Drachmas much like the USA prints dollars and Latin America printed Pesos and Cruzeiros..

Apr 24, 2011 7:42am EDT  --  Report as abuse
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