Former Chief ECB Economist Tells It Is Inevitable Greece Will Leave Eurozone And The Greek Debt Haircut Will Be 50%
While futures soar on whatever the latest rumeur de l'heure is (soon to be refuted by Germany although with month end window dressing to be done, nobody will care) the relevant facts are once again being largely ignored. In this case, Otmar Issing, former chief economist of the massively undercapitalized hedge fund known as the European Central Bank, has told Stern magazine that "Greece will find it “impossible” to get back on its feet even after the country implements austerity measures and it is inevitable that Greece will have to leave the euro-zone. He added that Greece needs a debt haircut of at least 50%, and even so preventing contagion will be very complicated. His biggest warning pertains to the deus ex machina which everyone knows is the last thing up Europe's sleeve: the prospect of issuing Eurobonds (aka the suicide button for any German ruler at the time when these are implemented). To wit: "Eurobonds will prove the gravedigger of a stable euro." Luckily, that is already priced in, as is the subsequent resurrection, which explains why the EURUSD is back to one week highs on nothing but, well, rumors.
Google translated from Stern:
The former chief economist of the European Central Bank, Otmar Issing calls, an average debt to Greece and holds an exit in the wake of the country from the euro zone as inevitable. In an interview with the star said the longtime central banker, he considered it "impossible" that Greece through radical austerity measures come back on its feet. The country would achieve in the coming year, a debt ratio of 160 percent of gross domestic product. "The debt service for this horrendous burden the country can no longer afford to simply and easily", he said
In addition to the former ECB economist a number of economists calling for a cut debts. So had ten experts in the "Financial Times Germany called for a rescheduling. Said in a commentary for stern.de also the director of the Hamburg World Economic Institute (HHWI), Thomas Straubhaar, called for it on the politicians to create the conditions that a Euro-land can also go bankrupt.
The renowned economics professor concluded: "Without a serious debt cut is no longer the country on its feet." This must be "at least 50 percent more likely to" be. That will not go inside the monetary union. Greece therefore had to resign after an average debt of the euro zone. Issing explained this in the star said: "A restructuring in the euro zone would be a de facto carte blanche for Greece and other highly indebted countries to get rid of a reduction of their debt problems." That would be "the end of the monetary union".
Issing warned of contamination of other euro countries by the current crisis. This must be prevented, because as Italy was "too big to be rescued by others." The Economist considers the warning from the International Monetary Fund (IMF) is justified. In such a case could collapse the entire financial system: "This danger is, in fact."
Even before Euro Bonds, so common Euro-zone bonds, the economist warned. "Who wants € Bonds will prove as the gravedigger of a stable euro," Issing said. "At the end of previously solid states threaten to sink into a debt spiral. Then Germany would also stifle financial policy. Then, the project is stable euro died."
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