PARIS (MNI) – A restructuring of Greek debt is “definitely
undesirable,” because the damage it caused would outweigh any perceived
benefits, former European Central Bank Vice President Lucas Papademos
said in a television interview aired on Friday morning.

Implementing the austerity program to which Greece has already
agreed “is the only way forward if the fiscal imbalances are to be
addressed and restructuring to be avoided,” Papademos, who is Greek,
told CNBC.

However, he seemed to hint that different terms on the country’s
onerous debt load might ultimately be possible, though he pointedly
declined to use the term “restructuring.”

“In the longer term, one can see how — and I would use a more
general phrase — appropriate financing arrangements can be adopted in
order to facilitate the implementation of the adjustment programs,” he
said.

But Papademos spent most of the interview attacking the arguments
of those who say a restructuring of Greek debt is inevitable.

“Some market participants or economic analysts believe that debt
restructuring is desirable, because they focus on the partial potential
financial benefits from this,” he said.

“But the more thorough analysis suggests that, first of all, the
financial benefits are limited, and second that the adverse consequences
both on the banking system in Greece as well as on financial stability
in the euro area as a whole can be far reaching and undesirable. So all
in all, I think that Greek debt restructuring should not be on the
agenda.”

He also argued that the debate on restructuring, “which has also
been rather extensive in Greece itself, not only outside, is likely to
reduce the focus and effort that is needed in order to implement the
adjustment program.”

With regard to the wider risk of the peripheral crisis, Papademos
said, “contagion cannot be totally avoided, but it can be minimized if
in all the countries concerned the appropriate policy actions are being
taken.” He said it is “crucial” that “progress be made in parallel for
all these countries in order to avoid contagion, which can go in any
direction.”

Papademos also said “careful thought” should be given before
deciding to use “a new financial instrument like a Eurobond.”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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