A senior European Central Bank director yesterday laid out the ECB’s case against forcing the private sector to take part in a Greek bailout, warning that it could cost taxpayers dearly.

Any restructuring of Greece’s debt should only be a last resort, ECB executive board member Lorenzo Bini Smaghi stressed in a speech in Berlin, because it might have serious consequences for the economies of creditor countries.

Changing the terms of how much Greece pays back and automatically involving the private sector “does not help save taxpayer’s money; indeed, it may cost them more money,” he argued, because the fallout from imprudent decisions could affect banks in many eurozone countries. Mr Bini Smaghi cited a newspaper report in April which estimated a default on Greek debt could cost German taxpayers at least €40 billion.

German leaders are pushing for private sector involvement in future rescue plans for Greece to avoid having fed-up taxpayers foot the bill once again.

The ECB firmly opposes forcing losses on private investors, however, for several reasons.

Banks in Greece and elsewhere, including Germany, could suffer heavy losses and find themselves cut off from interbank lending markets amid fears over how severely they were exposed.

A “preventive” restructuring of the sovereign debt also “favours short-term speculation over long-term investment,” Mr Bini Smaghi said, and becomes “a way to punish patient investors, who are sticking to their investment”.

On the other hand, speculators who have bet on a default would be rewarded, he noted.

Finally, an automatic restructuring of Greece’s debt “discourages and even delays any new investments in a country implementing an adjustment programme,” such as Ireland and Portugal, the ECB executive added.

“The only way to protect taxpayers in ‘virtuous’ countries is to avoid over-indebted countries from easily getting away with not repaying their debts; the payment of debts should be enforced,” he concluded.