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Rehn Says Europe Debt Restructuring Would Cause ‘Chain Reaction’

European Union Economic and Monetary Affairs Commissioner Olli Rehn said a debt restructuring in the euro area would cause a “chain reaction” in the banking industry and he ruled out such an operation for Greece.

“We see that in a still-fragile situation in the European economy there is a risk that debt restructuring would cause a chain reaction through the banking sector,” Rehn said today at an event in Washington. “That would have a serious negative impact” on lending and negative ramifications for households and citizens and could endanger the recovery, he said.

“Nobody should underestimate the risk of contagion to other sovereigns,” Rehn said.

“I’m aware of the public debate and recent statements as regards the debt sustainability of Greece,” Rehn said. “We do not see debt restructuring as an option.”

The euro area has managed to “contain” the sovereign-debt crisis, Rehn said, adding that critics were “wrong to predict a failure or the breakup” of the euro. The currency bloc will “come out of this crisis stronger than before,” he said.

“The euro is not on the list of problems,” Rehn said. “Instead, it’s an essential part of the solution.”

Rehn said he is “quite confident” the financial-aid package being negotiated for Portugal will result in the debt crisis being “ring-fenced.” The package for Portugal should be in place “in a matter of weeks.”

He also said he is “confident Ireland will be able to overcome its challenges.”

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