Former Chief ECB Economist Tells It Is Inevitable Greece Will Leave Eurozone And The Greek Debt Haircut Will Be 50%

Tyler Durden's picture

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 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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Fips_OnTheSpot's picture

massively undercapitalized hedge fund known as the European Central Bank

Right - now I've to clean my monitor :)


I wonder what happens tuesday (Monday: Reunion-Day in Germany - a sign?)

trav7777's picture

Greece has debt P.  They owe interest I.  That means when the debt matures, they really need to come up with P+I.  They are not growing.  Consequently, they must default.

There is no way to play the debt or debtmoney games if you are not growing.  Greece and Ireland are just canaries.

JohnF's picture

I'm going to pick on a nit: it's the Day of German Unity, not Reunion Day. Germany didn't return to its former glory and the borders of 1937, but rather the countries of the Federal Republic of Germany and the German Democratic Republic merged (friendly takeover, if you will) into the new and improved Federal Republic of Germany.

You can't reunify something that didn't exist before: Germany before the two Germanys isn't the Germany after the two Germanys...different entities. Reunification would have meant going back to the borders of 1937, and the Poles, Russians, Czechs, Slovaks and a few other countries weren't to keen on this.

covert's picture

all of europe will fail for a variety of reasons. greece will surive in strange ways though.


P the P's picture

rumeur de l'heure - surely?

BeerGoggles's picture

Economists don't know anything./

cossack55's picture

"wars and rumors of wars"

"bailouts and rumors of bailouts"

"democracies and rumors of democracies"

"CNBC and rumors of stooges"

GoldBricker's picture

haircut of 50%, probably more

Partial default will happen only as a condition of a partial bailout.

The only reasons for Greece to cough up anything at all are:

  1. they think that they can keep borrowing from those same markets
  2. they have assets abroad that creditors can seize

It's hard to see how 1) applies, as even good borrowers have trouble these days. This is not Argentina, which has commodities and defaulted before the crisis began

As for 2), if Greece had anything to seize it would've been sold (10 times over) by now.

Take the bailout money and run, boys; it'll all come to the same thing in the end.

yabs's picture

still the markets hold up uinbelievable

who ever thinks this can be saved cannot do the maths capable of an average 5 year old and thus should not be investing anyway but should be in a school for the mentally retarded

V in PA's picture

The fall is being delayed, so the whales can properly position themselves.

Troy Ounce's picture



Hahaha, the confidence tricksters are pissing on their shoes.

Damn, in the meantime the population does not have a clue. Fast asleep. Thanks to the msm.

BeerGoggles's picture

Greece is just one small country. The US is in a far worse position.

yabs's picture

The Greeks are actually very good at giving haircuts. Some of the best barbers around are greeks thus I expect more than 50 percent

disabledvet's picture

and get it well....AND GET IT WELLLLLLLLL........

Dingleberry's picture

So who's next???? Once Greece exits stage left, Spain perhaps? I want to see some serious big league shit. This Greek drama is for kids, and getting old quite frankly.

gnomon's picture

Hey German People.  How do you like being the focus of the world right now and for the foreseeable future?

The next chapter in this God Awful Mess hinges on what you guys do. 

I hope that you swallow the bitter pill now and keep your money as sound as possible. 

There is an English Saying, "In for a penny, in for a pound".  

Don't spend that penny!!  Tell Geithner to screw himself!

V in PA's picture

Bitter pill
Salty load

What will Germany swallow?

duckhook's picture

Underlying all of this is that the country rally in the most trouble is France if it backs up its banks with their huge exposure to Eurozone debt.

LongSoupLine's picture

Ever notice how 100% of "Former insert title here" come out and give full clarity and honesty regarding economic conditions?

Yet while they all were in their respective positions it was 100% deceipt, lie, propaganda, and outright unethical and moral behavior.

I would love the see an over/under spread sheet on what was said/done during then after with these fecalmunchers.

lapedochild's picture

I could not agree more... in essense all these statements are 'irrelevant' because they amount to nothing. If anything it's confirmation of how bad things really are. I loved the DSK sneer that Greece can't be saved. But until someone holding office is making a statement like this it really doesn't mean much..

overmedicatedundersexed's picture

MSM has a wonderful way of sooothing the media output when needed

classic just ignore and do not report on it

the old tree in the forest and no one there.

we are breeding people who attention span is short..look around you at those who live via the iphone addiction...

budda wanted mankind to be totally aware of physical reality for a reason

nature will not treat these people well..and it's not our duty to wake them.

Volaille de Bresse's picture

"they have assets abroad that creditors can seize"


They have 200 Bil hidden in Swisss banks (and probably an equal amount resting in London). Angela you know where to strike first!

Volaille de Bresse's picture

Greece is the wart on the nose of Europe BUT if it fails I'm afraid it might become Europe's anus cancer. Imagine a country with an inexistant state power (no police no army) with an unemployment rate of 60% that becomes a haven for every sort of trafficking : drugs (mainly heroin from Afghanistan) lethal crap made in China, refugees from Africa.


Mmmmmm.... NO GOOD!

spanish inquisition's picture

Everyone is being prepped for 50%+ haircut. When default comes and announced that every problem is solved with a haircut of ONLY at 48% (on paper of course, the actual amount will be 80% and passed to the people), extreme irrational exuberance will follow until the markets demand more infinite printing and backstopping of a new country(which will take about a week).

A different theory is that to buy time, Greece is kept in a state of default/ non default to stabilize the markets and keep everyone focused on Greece.

Nothing says that both theories can't happen.

Tense INDIAN's picture

do we have to blame only rumours for market movements...cant it be mathematics , geometry, cycles ....working on the markets ...

spanish inquisition's picture

The math, geometry and cycles are trying to past track human behavior and using using it to predict possible future behaviors using $ as a measure.

Rumor is the first wildebeast in a herd to break because of percieved danger. Using math, geometry and cycles you can postulate future outcomes dependant upon further information. Will the rest follow or won't they? Is there a lion or more than one in the bush or not? Where there are lions there are hyenas. Is this familiar territory? Being the first with information allows you to model outcomes first and discount it or figure out why the rumor was started first. It takes decisions and action to create the graphs in the first place.

That said, to graph properly, I think you need to eliminate all news which could alter your assumptions and look strictly at numbers. Also, if you have figured out a system that works, you can't tell or show anyone, it's over as people start trading it and it will be altered. That brings us back to the human behavior side of it...

Just my 2 cents...

EDIT: look at the effect Art Cashin has on the market a couple of days ago...

Youri Carma's picture

I am done with all the but's and if's - first seeing than believing.

drivenZ's picture


as I mentioned yesterday...

"have the lenders take a 100% haircut, forgive all of Greece's debt. Would they be able to access credit markets? probably not. They're still running large deficits, their revenues are shrinking and good luck collecting those back taxes."   


boiltherich's picture

If the Greeks do leave the EZ why would they volunteer to repay 50% of their outside debt in euro?  More likely they will repay none of it.  At least not for a very long time, and then it would be a fraction of the 50% and denominated in drachma which by then will only have any real value in Greece.  And I think that should Greece default and leave the zone we will not be discussing any entity repay anything in euro, contagion will make sure there is no euro, not even a Teutonic core in the north. 

bugs_'s picture

oh....yeah.  if they won't do the austerity to pay back 1.0 how does anyone expect them to do the austerity necessary to pay back 0.5?  way bigger haircut - try GM bondholder style haircut.

sampak101's picture

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