Jürgen Stark told the financial daily Börsen-Zeitung in comments to appear Thursday that he “personally sees no risk of a credit event, or credit downgrade,” if the European Financial Stability Facility (EFSF) bought Greek sovereign bonds on secondary markets.

A “credit event” would trigger the payment of insurance on sovereign bonds known as credit default swaps, meaning that markets considered Athens to have defaulted on some of its €350 billion ($500 billion) in debt.

Stark allowed however that market participants could well conclude a default had taken place if the EFSF bought Greek bonds, one idea that has been floated to reduce the pile of debt that many feel will never be fully repaid.

His comments were released a day before a summit in Brussels called to find ways of dealing with the Greek debt crisis, which threatens to spill over into the much larger eurozone economies of Italy and Spain.

French President Nicolas Sarkozy and German Chancellor Angela Merkel were to meet later Wednesday in Berlin ahead of the summit to discuss possible remedies.

The ECB has warned repeatedly that a declaration of default would mean it could not accept Greek bonds as collateral against loans, which would likely cause the Greek banking sector – and perhaps others – to collapse.

ECB officials have urged eurozone political leaders to reinforce the EFSF and make it more “flexible,” meaning making it able to take over the ECB’s unwanted role of buyer of last resort for Greek bonds.

Deutsche Bank economist Gilles Moec noted that the EFSF could raise money to lend to Athens to buy back its own bonds at discounted prices and cancel them, thus reducing its debt load somewhat.

Moec said that that “can hardly be a silver bullet, as bond prices are likely to rise sharply in response to such an announcement, but that would be a sign that the Europeans are taking the long term debt sustainability issue seriously.”

The economist warned however that substantially increasing the EFSF’s size to deal with other problems “would be a mistake, as it could jeopardize the AAA (ratings) status of some of the core countries, France in particular, which in term would entail a complete collapse of the rescue system.”

AFP/mry