Greek debt restructuring could eclipse Lehman: ECB's Stark

BERLIN: The consequences of a Greek debt restructuring on Europe's markets are unforeseeable and could eclipse the Lehman Brothers insolvency that precipitated the global financial crisis, a top ECB policymaker said on Monday.

Juergen Stark, a member of the ECB's Executive Board , said a Greek restructuring would threaten the solvency of Greek banks and have repercussions across euro zone financial markets, possibly resulting in a sell-off in other countries' bonds.

"This would of course particularly impact those countries that currently have difficulties financing themselves on the markets," Stark said in the text of a speech for delivery in Berlin.

"The impact of a restructuring for the stability of the financial system in Europe are not foreseeable and could eclipse the impact of the Lehman insolvency," he added.

Meanwhile, Stark said that euro zone's economic recovery remained self-sustaining despite the region's debt crisis. However, reiterating the bank's fears over a Greek default, he said the euro zone's economy was recovering without the aid of support measures.

"We don't yet have a self sustaining economic dynamic in the U.S. but we have do have a self-sustaining economic recovery in Europe, in the euro zone. That is not altered by the problems we have in the euro zone periphery," he said at a conference organised by German newspaper Die Welt.

Stark, who oversees the ECB's influential economics division, said policymakers needed to think twice before putting forward a soft debt restructuring as a way to tackle Greece's fiscal problems.

Asked about a 'Plan B' for Greece, he reiterated the ECB's view that the only plan on the table at present was for the country's current fiscal programmes to be implemented.

On interest rates, he warned that central banks around the world needed to think about tightening monetary policy.

"Monetary policy globally is still very expansionary. The situation at the height of the crisis was appropriate. It is no longer appropriate," he said.

Stark also added to confusion over the position of fellow board member Lorenzo Bini Smaghi, who is being pressured by France and his native Italy to step down when countryman Mario Draghi takes the helm at the ECB later this year. (for story click )

So far, no country has ever occupied more than one of the six seats on the ECB's board. French President Nicolas Sarkozy said on Friday that Bini Smaghi had told him he would quit. Stark, however, suggested it may not be a done deal.

"It is not written anywhere that there cannot be two members on the ECB Executive Board with the same nationality. I know that he (Bini Smaghi) has not signalled that he plans to step down and that he hasn't stepped down," Stark said.

Source: EconomicTimes