Aachen, Germany (Reuters) - sovereign debt of Greece restructuring would potentially incalculable risks for the overall euro area and will not solve the budget crisis, a senior official of the European Central Bank said Friday.
Speaking in the German town of Aix-la-chapelle, Member of the Executive Council of ECB Juergen Stark warned that market speculation on a debt restructuring was based on the "false assumption" that the Greece was insolvent.
Would "I notify against massive adverse effects, that a debt restructuring would lead to the country concerned and for the whole of the euro area be mistaken", he said, adding that the risks would be far reaching and effectively incalculable.
Debt sustainability would be compromised as companies postpone investment of uncertainty, the limitation of the growth and the increase of its obligations in proportion to the size of the economy.
In addition the domestic banking sector would insolvency, forcing the Government deeper in the hole she lenders to rescue.
"It is also very conceivable that the risk to the stability of financial markets could extend to other European countries," he said.
"The idea that one could then resolve a financial crisis due to a reduction of the simple debt (resulting from a restructuring) is therefore an illusion," Stark continued.
Instead, he said that the lone alternative for a lasting solution to the crisis was for the Greece and other countries of the euro zone debt to continue on their path of comprehensive structural reforms and painful austerity measures.
A restructuring of the debt would have the opposite effect and weaken the incentives for Government pass severe budget cuts and unpopular reforms.
"In the case of the Ireland and the Portugal no accountability and broad support.". "I hope that this will soon be the case in Greece," said Stark.
While he expected the eurozone to eventually increase in its membership from the current 17 participating States, he added that any of the other 10 could now withstand strict convergence criteria needed to adopt the euro.
It addresses an event before of prestigious Aachen Charlemagne award June 2 which will be attributed to the President of the ECB, Jean-Claude Trichet.
A fundamentalist when it comes to stability of prices, Stark left little doubt once more than other ECB rate hikes have been on the agenda to keep well anchored inflation expectations.
"We have never said that we would raise rates every month or every two to three months, we have said that us would raise them gradually," he said Friday. The Central Bank based in Frankfurt travelled from rates of loan for the first time in nearly three years after that of overall euro area inflation surged past the threshold, which it uses to define price stability, which is below, but close to 2 percent last month.
The market is currently pricing in two additional hikes before the end of the year, with the next should generally coming in July.
(Reported by Matthias Inverardi Aix-la-chapelle, and Christiaan Hetzner Frankfurt.) (Editing by Chizu Nomiyama)
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