Many economists say Greece needs to restructure its debt to have any chance of paying it back. But Lorenzo Bini Smaghi, an executive board member of the European Central Bank, doesn’t see it that way. A restructuring would be harmful – and not just to Greece, he tells the Italian newspaper La Stampa, according to Business Insider. The entire euro zone would suffer, especially Germany.
Greece’s banking system would collapse because many of the bank’s strongest assets couldn’t be used as collateral for loans from the ECB, Smaghi says.
|Clashes erupt during a general strike in Greece.
(Getty Images photo)
Moreover, with the ECB rather than Greece’s own central bank controlling the nation’s money supply, the government wouldn’t be able to obtain the money to pay its expenses, including government salaries and pensions.
The result would be "a true economic meltdown," Smaghi says.
He says it is "investment banks and law firms in search of commissions," who are pushing a restructuring on Greece, not caring about the wider ramifications.
On Monday, Standard & Poor’s cut the country’s credit rating for the fourth time in the last 13 months. Greece’s budget deficit totaled 10.5 percent of GDP last year.
Greece isn’t the only European country in trouble. Exploding debt burdens have created crises in Ireland, Portugal and Spain too.
“One by one, they will all need to renegotiate,” Bill Blain, co-head of strategy at London brokerage Newedge told Bloomberg. “As Europe’s most peripheral economy, Greece is just a canary in the coal mine.”
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