Lehman warning on Greek debt deal

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A SOVEREIGN debt restructuring in a eurozone state could trigger a banking crisis worse than that unleashed by the collapse of Lehman Brothers, according to the European Central Bank.

Juergen Stark, a member of the executive board, raised the spectre of the US investment bank’s famous collapse to underline the ECB’s opposition to Greece restructuring its mountain of debt.

“A restructuring would be short sighted and bring considerable drawbacks,” he said in a German interview. “In the worst case, the restructuring of a member state could overshadow the effects of the Lehman bankruptcy.”

The bankruptcy of Lehman Brothers in September 2008 virtually froze credit markets and pushed governments into huge bailouts of their banking sectors.

Rising expectations that Greece will have to restructure a debt load that is one-and-a-half times its annual output has raised doubts about whether leaders can restore confidence in the 12-year-old euro currency experiment.

Mr Stark said Greece is being monitored closely but is not insolvent.