Greek debt restructuring would do 'massive harm'

In comments designed to boost confidence in financial markets, Jurgen Stark, executive board member at the European Central Bank, said speculation that Greece is insolvent was a "false assumption".

"I would warn against underestimating the massive harmful effects a debt restructuring would cause for the country involved and for the eurozone as a whole," Mr Stark said, according to Reuters reports.

Global equity markets have been hit this week on fears that Greece could fail to meet debt repayments terms and be forced to call for a second bail-out.

Mr Stark said such a restructuring could lead to contagion. "It is very well conceivable that the risks for financial market stability could spread to other European countries," he said. "The idea that one could then solve a fiscal crisis through a simple debt reduction [from a restructuring] is consequently an illusion."

The ECB executive, who heads up the Bank's economics department, said it would take time for Greece's new economic realities to find support, but warned that a second bail-out would put necessary reforms at risk.

"In the case of Ireland and Portugal there is broad support and accountability. I expect this will soon be the case in Greece as well," he said.

Worries over Greece's troubles pushed UK and US markets lower. The FTSE closed down 19.09 at 5925.87, while in the US the Dow Jones fell 100.17 to 12595.75.

Click to read more...