ECB's Orphanides says Greek haircut harms euro zone

European Central Bank governing council member and Cyprus Central Bank Governor Athanasios Orphanides addresses parliament in Nicosia, November 27, 2009.

NICOSIA (Reuters) - A haircut of Greek debt is damaging to Greece and the euro area, and has stoked wider concern about possible impairment of bonds in other euro zone members, ECB Governing Council member Athanasios Orphanides said in a newspaper interview on Sunday.

"A possible haircut of the Greek debt is unnecessary and it is harmful for Greece and for the euro area as a whole. I still hold this view," Orphanides, who is governor of Cyprus's Central Bank, told the island's Kathimerini newspaper in an interview.

He was responding to suggestions that his reassurances, in the past, that there would be no Greek debt haircut were misleading.

Euro zone leaders had on October 26 agreed private banks and insurers would voluntarily accept a 50 percent writedown to reduce Greece's debt load. Political leaders, Orphanides said, "imposed" the cut.

"In my view, imposing a haircut on Greek debt was neither the most effective nor the most efficient way of resolving the sovereign crisis in the euro area."

"Unfortunately, a deterioration is observed in the euro area which, I believe, was entirely predictable," the central banker said.

Forcing the private sector to accept impairment on Greek debt had generated concern about the possible impairment of sovereign bonds of other euro zone member states, he said.

"These concerns have already raised significantly the overall cost of borrowing in the euro area, a development we pay dearly for," Orphanides said.

"This is why President Trichet and other central bankers had been urging governments to avoid such moves," he said, referring to former European Central Bank (ECB) head Jean-Claude Trichet.

(Reporting By Michele Kambas; Editing by Robert Birsel)