The European Central Bank's interest rates are still very low even after this month's hike, and its policy is "very accommodative", ECB policymaker Juergen Stark has said.
The ECB executive board member, who oversees the bank's economics division, also rejected the idea that debt-ridden euro zone states could restructure their debt, saying "it would not solve the problem - on the contrary".
"It is extremely costly to the respective countries," he said of restructuring in an interview with Portuguese newspaper Publico. "If they really considered restructuring debt, they would have to pay in the future a higher risk premium."
"It has also an impact on the country's banking sector, which holds a huge part of the government bonds," he added, without referring to any specific country.
The premium on Portuguese, Spanish and other lower-rated euro zone government debt over benchmark German Bunds rose yesterday on market concerns about a possible Greek restructuring.
"It creates a lot of problems, with a high cost for the country and of course for other countries," Mr Stark said of restructuring. "With restructuring you would hit the wall again in a couple of years."
Despite the debt problems of peripheral euro zone countries like Greece, Ireland and Portugal, the ECB raised interest rates by a quarter of a percent to 1.25 percent earlier this month to address inflation pressures in the euro zone.
The rise ended almost two years of record-low rates, and ECB policymakers have mostly talked tough on the need for further hikes.
"I agree that even after it was raised to 1.25 per cent, the interest rate is still very low in historical terms," Mr Stark said. "It is still very accommodative and contributes to economic growth and job creation."
ECB policymakers have talked about normalising the level of interest rates - a process that Mr Stark said "means a gradual increase in interest rates."
Turning to the issue of banks dependent on ECB funding, he said the euro zone interbank market needed to function better.
"And that only happens if there is trust among banks," he added. "They need to be more transparent, to deleverage and, if need be, recapitalised."
Reuters
