Greece restructuring rumours 'unfair': ECB official

20th April 2011, Comments 0 comments

Speculation that Greece will soon have to restructure its debt is an "unfair prejudice", a member of the European Central Bank said on Wednesday, as Athens battles an economic crisis.

In an interview with German daily Frankfurter Allgemeine Zeitung, Yves Mersch, who sits on the ECB's rate-setting governing council, recalled that Greece's parliament had voted for the reforms needed to bring down the debt.

"Not allowing these democracies the chance to live up to their obligations is an unfair prejudice," said Mersch, who is also head of the central bank of Luxembourg.

Rumours have abounded recently that Athens needs to ease its repayment schedule on a crippling debt mountain that has exploded to 340 billion euros ($490 billion).

Official denials from the Greek government, the European Commission and the International Monetary Fund have done nothing to quell the speculation.

On Tuesday, Greece raised 1.625 billion euros in a sale of three-month treasury bills but at a high cost.

And the rate of return on Greek benchmark 10-year government bonds jumped above 14 percent on Monday for the first time since the eurozone was created.

Such levels are unsustainable for a Greek economy gripped in deep recession, fuelling talk that Athens may have to throw in the towel.

Turning to Spain, which many analysts have cited as potentially the next eurozone country to fall victim to a high level of debt, Mersch recalled that Madrid "had lower public debt than Greece, Ireland, Portugal and even Germany."

And asked if a new bout of the eurozone's debt crisis could induce the ECB to hold off on an expected series of interest rate rises, Mersch said the bank was determined to stick to its aim of keeping inflation down.

"We have a mandate to guarantee medium-term price stability. That is a mission that is not up for discussion," the central banker said.

Last month, the ECB raised its key interest rate to 1.25 percent for the first time since mid-2008. The markets expect a progressive tightening of monetary policy, with rates of 1.75 percent or 2.0 percent by the end of 2011.

© 2011 AFP

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