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EU warns on Greek debt restructuring

Brussels - EU economic affairs chief Olli Rehn warned Monday that debt restructuring for Greece is not part of Europe's strategy and would have "devastating" consequences, one year to the day from the international deal to bail out Athens.

"Proponents of debt restructuring seem to ignore the potentially devastating consequences for the country itself (Greece) and the euro area as a whole," European Union economic affairs commissioner Rehn said.

"I repeat it is not part of our strategy," he told financial policy-makers in Brussels at a conference looking at the European Union response to the financial crisis of the last 30 months.

On May 2, 2010, European Union leaders agreed a €110bn joint bailout of the Greek government with the International Monetary Fund.

A week later, they set up a crisis fund worth a trillion dollars all told, which has since been tapped by Ireland - to the tune of €67.5bn - and negotiations are currently under way with Portugal over a bailout estimated at some €80bn.

However, with the recession in Greece meaning its economy has not performed as well as hoped amid huge cuts in public spending, many financial experts are convinced Greece will have to restructure its public debts - pegged last week by the European Commission at some €330bn.

"Some people argue that the crisis management of the EU with regards to Greece ... is vague," Rehn said.

He insisted: "I disagree. ... The aim of our strategy has been first of all to prevent a repeat cardiac arrest in financial markets," after the collapse of Lehmann Brothers bank in September 2008.

"Secondly, we have been able to largely contain stress in sovereign financial markets to three more vulnerable nations," Greece, Ireland and now Portugal.

Rehn maintained that a narrowing of bond spreads vis-a-vis German borrowing costs for Spain, a major eurozone economy but one also heavily-indebted and labouring under high unemployment of some 20%, meant Spain "is recovering ... thanks to determined action" towards fiscal consolidation.

He said European Commission "analysis shows that the debt-to-GDP ratios have stabilised and are starting to decline," provided the Greek and Irish EU-IMF loan programmes are fully implemented.

Rehn said the key going forward lay in eurozone states having "addressed systemic weaknesses in EU economic governance to prepare for a profound change in the policy-making landscape of the EU."

EU leaders are toiling to agree a revamp of economic policy across borders at a June summit, in a bid to ensure all currency partners act in the interests of the whole not just their own economies.

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