Hans-Werner Sinn, president of the German thinktank ifo Institute has argued in favour of an international debt conference in order to discuss the restructuring of Greek sovereign debt.
„Greece has to become economically viable and competitive again, this requires a devaluation of its currency, in other words, a temporary exit from the eurozone, which in turn requires a write-off of Greek debt. All these steps will have to be decided and coordinated internationally“ he stresses.
Sinn argues that the catastrophic economic situation in Greece, including the doubling of unemployment figures since 2010 and the 30 % drop in industrial production means that the country will never be able to repay its debt independently.
According to the Greek research site Makropolis, Greece has received a total of €226.7bn in IMF and eurozone disbursements, however €122bn, almost half of these loans was provided for debt servicing. The remainder of loans largely went into debt reduction exercises.
The ifo Insitute estimates that a Greek default combined with an exit from the eurozone would cost the German state up to €76bn, a Greek default without exit from the eurozone would cost the German state €77.1bn. Estimates of costs are based on Germany’s contribution in Greek bailouts via the IMF and EFSF as well as ownership of Greek sovereign bonds.
The estimate does not factor in the sharp decline of German borrowing costs as a result of the crisis in the eurozone. According to Klaus Regeling, head of the ESM permanent bail out fund, Germany is saving between €10 and €20bn a year due to the reduction in borrowing costs.
Sinn compared the Greek crisis to post-war Germany by stating: „One precondition for the German economic miracle was the debt-write off by American and British creditors during the London debt conference in 1953.“ However, Sinn also argued that the proportion of the Greek debt write off would have to be significantly larger.
„At the time, Germany had, including the Marshall Plan, a debt write-off equivalent to 20% of its GDP whereas the implicit and explicit haircuts on Greek debt in 2012 have already amounted to 76% of its GDP“ he said.