BERLIN (MNI) – The head of the European Financial Stability
Facility (EFSF), Klaus Regling, said in a newspaper interview published
Monday that warnings about a possible restructuring of Greek debt are
“completely overblown.”

“Not only the media are fueling this debate but also the banks,
because they could make a lot of money from a restructuring,” Regling
told German business daily Handelsblatt.

He noted in the interview that the banks had charged “very high”
fees for the restructuring of Latin American and Asian debt in the 80s
and 90s. Given that Greek government bonds are held by many different
institutional investors, the impact of a restructuring on a single
investor would be limited, Regling argued. “The losses for the banks
would be limited but the fees would be promising,” he said.

The EFSF head reckoned that economists are underestimating the
ability of the Greek economy to regain growth momentum after the
wide-ranging reform program has been implemented.

Regling acknowledged that it might be difficult for Greece to raise
E25 billion in markets as soon as next year, but he said the country
could still offset any shortfall by speeding up its privatisation
program or by cutting expenditures more heavily.

Commenting on Portugal, the third Eurozone country to request
financial aid, Regling said he hoped that the negotiations with Lisbon
will yield results by May 16, when EU finance ministers are scheduled to
gather for their Ecofin meeting.

Portugal will need funding by June 15, when a large payment to its
creditors is due, the EFSF head reminded. “It will take us roughly two
weeks to raise enough capital on markets,” he told Handelsblatt. “Thus,
I very much hope that we will have a decision by May 16.”

However, he acknowledged that there is reason to be nervous about
the prospects of quickly agreeing with Portugal on a far-reaching reform
program, given that the country will soon hold national elections after
which a new government will be formed.

The IMF is ready again to shoulder one-third of the financial aid
for Portugal, as it has done with Greece and Ireland, Regling said. He
said he expected the EFSF would provide financial aid to Portugal and
Ireland totaling E50 billion.

Regling said he does not expect Spain to require financial aid.
“The financial markets have now understood that the current debt crisis
will remain limited to three small countries with a share of just 6% of
the GDP of the EU,” he asserted.

The Greek government has repeatedly said that it has no plans for a
restructuring of its debt.

Last month, French Finance Minister Christine Lagarde also rejected
the idea of restructuring the debt of Greece or any other Eurozone
countries in need of financial aid.

Asked by the Finance Commission of the French National Assembly
about the eventual consequences for France of a mechanism for
restructuring, Lagarde said the very notion is “not anticipated, not
imaginable and not on the agenda.”

“As a result — even if it makes some people smile — there is no
question” of such a mechanism, she added.

The German government last month also repeatedly declared that
media reports about a looming restructuring of Greek government debt
were unfounded.

German government spokesman Christoph Steegmans said that Germany
considers statements by the Greek government that it has no plans for a
debt restructuring as “sufficient and clear.”

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: M$G$$$,M$X$$$,MT$$$$,MFX$$$,MGX$$$,M$$CR$]