ECB Orphanides:Greece Debt Restructuring Would Be Destructive
LIMASSOL, Cyprus (MNI) – It would be a very costly mistake for
Greece to restructure its debt, European Central Bank Governing Council
member Athanasios Orphanides said Saturday.
Speaking to the press following a panel discussion on financial
stability, the head of the Central Bank of Cyprus said that remarks on
the subject by Ex-ECB Vice President Lucas Papademos, just prior to his
own, were “a wonderful exposition” that explained why a restructuring
“would not be a good idea — it would be destructive, it would be costly
not just for Greece, but for the whole euro area.”
Papademos, speaking at the same event, called a Greek restructuring
“undesirable both for Greece and the EU.” People who propagate the idea
fail to understand that “any debt restructuring…would have very
serious adverse consequences for the Greek banking system, and the
broader economy,” he said.
Orphanides, asked if Eurozone money markets had improved enough for
the ECB to revert to competitive bidding on its three-month refinancing
operations, replied that the ECB’s Governing Council is “constantly
evaluating” the situation and decides accordingly.
“We will have an important meeting in a couple of weeks, we will
have the new forecasts and we will have an opportunity to evaluate the
market conditions and any implications they have for our decision on
further phasing out,” he added. “But as you know, we do not pre-commit.”
Orphanides rejected the suggestion that the Greek debt situation
could affect the response of monetary authorities to rising inflation.
“Let me take this opportunity to remind you what our mandate is.
First and foremost we need to preserve price stability in the euro area
as a whole,” he said.
Keeping HICP below but close to 2% “is our primary mandate and the
monetary policy stance that we select is” geared to reflect this, he
“Subject to that, we are very sensitive to market conditions and
the difficulties that we are currently experiencing,” Orphanides
conceded, noting that the ECB is “using all our tools to ensure the
continuation of the improvement we have had in financial stability.”
“The bottom line is we have to be true to our mandate and our
mandate is price stability,” the Cyprus central bank chief reiterated.
“With regard to other difficulties, it is very important…that all
authorities live up to their responsibilities in improving the other
difficulties that we have.”
In comments made during the panel discussion, Orphanides affirmed
that “the crisis has been extremely costly worldwide in terms of lost
jobs, lost growth, lost income, lost wealth.”
As for policymakers, “all of us together, we have a collective
responsibility to make an effort to overhaul the financial system, with
two aims,” he said. “One is to increase the resilience of the global
system to shocks and in this way…reduce the risk, mitigate the cost of
a crisis whenever we might have the next one.”
Notwithstanding authorities’ best efforts, he said, there is bound
to be another crisis in the future.
–Frankfurt bureau tel.: +49-69-720142. Email: email@example.com