A restructuring of Greece's public debt, which many analysts say is inevitable, is inappropriate as long as the country follows through on promised reforms, European Central Bank chief Jean-Claude Trichet said Monday.
Greece's international lenders have made clear that a new bailout package, which would replace a 110 billion euro deal agreed only a year ago, depends on Athens keeping to its promises for further austerity and privatization.
In regard to your question on so-called rescheduling, 'haircuts' and so forth ... we are very clear we don't trust that, provided the two first conditions I have mentioned are there, there is a need for restructuring or for haircuts, Trichet said.
And we would say it is not appropriate.
Trichet called for Greece's privatization process to be both credible and professionally carried out.
His remarks came in an interview with the Canadian Broadcasting Corporation following a speech at an economic conference in Montreal.
Trichet said Greece misbehaved for 12 years on fiscal and macroeconomic policies and that the reforms demanded by the international community are a must for growth and job creation.
Greece is expected to get a vital slice of aid in July to avoid default, international lenders said Friday.
The European Commission, the European Central Bank and the International Monetary Fund ended a month-long review of their 110 billion euro ($160 billion) bailout program and said Athens had made considerable progress toward repairing its finances. But they said it must step up fiscal and economic reforms.
In his speech, Trichet said efforts to bolster surveillance of euro zone economies do not go far enough to prevent future fiscal crises.
The European debt crisis is not a crisis of the euro currency but arose due to poor surveillance of member states' economic policies, he said.
(The tensions) do not indicate a crisis in the monetary union, Trichet said.
Work to strengthen the euro zone's stability and growth pact with a focus on deficits and debts is a step in the right direction, Trichet said, adding that the reforms are too timid.
The Governing Council of the ECB is concerned that, although they are going in the right direction, the economic governance reforms being discussed are not ambitious enough to correct the structural weakness of fiscal governance and, more broadly, macroeconomic governance, of the euro area, he said.
Trichet called for tougher sanctions on countries that do not abide by EU fiscal rules and greater demands on member states in terms of their economic policies.
Ambitious benchmarks should be the basis when establishing the level of the excessive deficit and setting the adjustment path leading to a sound fiscal position, he said.
It is very important that macroeconomic surveillance clearly focuses on the countries with the greatest vulnerabilities.
On European monetary policy, Trichet repeated previous remarks on the possible second-round inflationary effects of higher commodity prices.
In these circumstances, the central bank must prevent increases in the prices of raw materials from being incorporated into the long-term inflation expectations, which could trigger second-round effects on wages and prices, he said.
He also reiterated that the ECB's non-conventional stimulus measures do not restrict in any way our ability to toughen the monetary policy stance when facing inflationary pressures.
(Additional reporting by Pedro Da Costa and Mark Felsenthal in Washington; Editing by Andrew Hay and Dan Grebler)