Top economist at European Central Bank blames Greek debt problems on 'vested interests' in Britain

'Discussion triggered from London and New York,' says Stark, of the European Central Bank

Greece frozen out of sky-high interest rates



European Central Bank governing board member Juergen Stark addresses an Economist roundtable conference in Lagonissi near Athens

The European Central Bank's chief economist has blamed Greece's debt problems on 'vested interests' in Britain and America, and said that a debt restructuring would be a 'recipe for catastrophe'.

Today Juergen Stark told a financial conference in Greece that the struggling eurozone country's 'debt sustainability is insured' if it fully complies with its internationally monitored austerity program.

And asked about the markets' hostility to Greek efforts, Stark said: 'This is not the view of all market participants, to be very clear.

'This is a discussion triggered from London and New York. I don't know what is behind it - vested interests, people topping their books and so on.



'So it's more complicated than just (saying) what markets expect.'

Greece's Socialist government was told by the European Union this week to take urgent measures to keep its austerity program on target, as part of its commitments for the 110billion Euros (£97billion) package of bailout loans it is receiving from EU countries and the International Monetary Fund.

The country remains frozen out of bond markets by sky-high interest rates as investors fret that Greece may eventually have to restructure its debt, which set to top 150 per cent of gross domestic product this year.

Stark said the restructuring option had not been properly thought through.

'Debt restructuring would wipe out part or all capital of Greek banks,' he said. 'So it would be a recipe for catastrophe.'

The euro sculpture in front of the European Central Bank in Frankfurt, central Germany. The top ECB economist has criticised the UK's handling of Greece

He urged Greece to 'double its effort' on structural reforms critics say have been stagnating and insisted that the austerity measures would be enough to bring the country back on its feet.



Stark continued: 'Greece is solvent. This is an important message.'

Stark's comments underlined the split among European officials over whether Greece should consider delaying repayment of its crushing debt load.

Jean-Claude Juncker, head of the eurozone finance ministers group, yesterday held the door open to what he called a 'reprofiling' of Greece debt - a voluntary extension of bond maturities.

Another top ECB official, Lorenzo Bini Smaghi, backed up Stark, saying even a 'soft' or voluntary stretching out of repayment would be 'devastating for overall financial stability,' according to the Ansa news agency.

'Time has been wasted these past months in the search for a way out, for an easy solution, like restructuring the debt,' Bini Smaghi was quoted as saying.



He said government failure to pay all its debts would have 'an immediate impact on the banking system'.

Officials are concerned Greece's troubles could harm Europe's economic recovery by inflicting losses on banks elsewhere in Europe that hold Greek bonds.

European officials are weighing up whether to give Greece another bailout. Last year's rescue loans were aimed at giving the country breathing space so it could return to borrowing from bond markets next year.

But it remains unable to borrow from private investors as its economy deteriorates and it struggles to meet the terms of the first bailout.

International debt monitors are currently in Greece to inspect the progress of cost-cutting reforms, and again warned that Greece needed to do more work to avoid sliding off target.

'We are in a situation where if we do not get this acceleration of structural reforms, the (budget) deficit will get entrenched at where it is now, around 10 per cent,' IMF monitor Poul Thomsen told the conference.

Thomsen acknowledged pain was unavoidable given the country's massive fiscal adjustment.

'It's impossible to deal with a deficit of 15.5 per cent of GDP without having a recession,' he said.



'People are dreaming if they think you can do this kind of adjustment without having a recession.'

