Ifo President Sinn Calls For International Debt Conference on Greece
Jan 6, 2015
Ifo President Hans-Werner Sinn has called for an international debt conference on Greece. “Greece needs to get back on its feet economically and become competitive again. This calls for a devaluation of its currency, thus a temporary euro exit, which, in turn, calls for a haircut. All of this must be jointly decided upon and internationally coordinated”, said Sinn, citing the country’s miserable economic situation as justification for the proposal. “Unemployment in Greece is now twice as high as it was in May 2010. Industrial production has plunged by 30 percent compared to its pre-crisis level. The country is sitting in a trap. Internal depreciation via austerity programmes has failed.”
Greece will never be in a position to repay its debts in any case, and its government is already facing the threat of another insolvency, just like back in 2012, warned Sinn. In his view, it is therefore better to try and break this vicious circle. If Greece were to exit the euro, the Federal Republic of Germany would only stand to lose a maximum of up to 76 billion euros at present. However, even if Greece does not leave the euro, its losses will be almost equally as high, but will merely be accounted for in a different way. And should Greece remain in the Eurozone, there is every reason to believe that the country will need to issue new debt again and again and that this debt will also have to be waived in the long-term. For the community of states, long-term support for Greece will turn into a bottomless pit, despite any immediate haircut.
According to Sinn, there are historical examples of debt conferences that were successful. One of the conditions for the German economic miracle of the 1950s was the claims waiver at the Agreement on German External Debts of 1953. However, at that time Germany only received 20 percent of its gross domestic product (GDP), including the Marshall Plan. Greece, by contrast, has already been waived debt equivalent to 76 percent of its GDP with the explicit and implicit haircuts of 2012.
Germany’s liability for Greek debts (PDF, in German)