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The Wall Street Journal, November 8, 2013. All Rights Reserved.

ATHENS—Further haircuts on Greek government debt should only be "the last resort" in the country's efforts at an economic turn-around, European Central Bank Executive Board member Yves Mersch said Friday.

Speaking at a conference here in Athens, organized by the Levy Institute of Bard College, Mr. Mersch cautioned that "Greece today stands at a crossroads."

Hard-earned reforms towards a sustainable economy is one way, "easy answers" the other, he said.

Greece's privately-held debt was restructured in May 2012 in the biggest debt restructuring in history. Most of its debt is now held by euro-zone governments and the International Monetary Fund, which have been keeping the country afloat since 2010 through bailouts worth a total of some EUR240 billion.

The IMF has called on euro-zone governments to accept losses on their loans to Greece in a form of debt forgiveness, in order to ease the debt burden on the country and give it breathing room to grow. Greece's economy has lost about one-quarter of its output since 2008.

But euro-zone leaders have rejected the idea, noting that the terms of the bailout loans to Greece are very favorable, with an interest rate near the refinancing cost of the loans and maturities that stretch out over the next three decades.

Mr. Mersch said debt forgiveness wouldn't "help promote fiscal discipline and could create higher costs in the long run."

A haircut on Greece's debt would "do nothing to address the fundamental weakness in the Greek economy," Mr. Mersch added.

A delegation from the troika of institutions overseeing Greece's bailout--the IMF, the ECB and the European Commission--is currently in Athens conducting a review of its progress. The mission had been suspended in September and has been fraught with disagreements over fresh austerity measures in the 2014 budget, as well as the speed at which the Greek government is implementing structural reforms.

Greece can only hope to get a fresh slice from its aid package if the review is successfully completed and euro-zone finance ministers approve a new disbursement. The earliest this might happen, given the delays in the review, is December.