Debt Haircut is Part of Greece’s Problem

20110928145538.196880598-5B2-5D.560x315The restructuring of the Greek debt is not part of the solution but rather part of Greece’s problem, Holger Schmieding, German economist and the current Chief Economist at Berenberg Bank argues, criticizing the conclusion drawn by the International Monetary Fund (IMF) as incorrect.

In his interview to the leading German language business newspaper Handelsblatt, the German economist underlined that, from the beginning of 2010 to mid 2011, Europe had managed to set limits on the crisis in Greece, Portugal and Ireland, but the crisis ran out of control when, under the pressure of the IMF, the restructuring of the Greek debt was decided, as fear of contagion of the crisis on other countries falsely prevailed then.

“That’s why investors abandoned Italy and Spain, too, and the turmoil hit so hard households and businesses, and the result was that the Eurozone fell into recession,” Schmieding explained. “For the German taxpayer it would be cheaper to pay further concessional loans to Greece than to pay the consequences of the debt haircut,” he added.

“Athens fell into a death spiral of an increasingly harder austerity, of weaker economic activity and, consequently, of ever shrinking tax revenues,” Schmieding continued.

Finally, the German economist said the conclusions that ought to be reached are much different than the IMF’s, “A debt restructuring is like playing with fire. It must be the last resort and to be used only in case there is absolutely reliable protection against the danger of contagion.”


  1. EU is a FARCE– READ THIS below from New York Times today… Incredible!—-

    “Greek EU Loans Plan May Reward Some Crooked Bank Executives”

    New York Times by Landon Thomas– June 25, 2013
    LONDON — Even as European taxpayers grimace at the escalating cost of bailing out Greece’s banking system, the banks’ top executives are poised to potentially strike it rich.

    The plan developed by the Greek government and its international creditors to recapitalize the country’s banks involves an unusual twist as stock offerings go: the new shares in the banks will give investors free and potentially lucrative warrants that will entitle them to buy many more shares in the future at a predetermined price.

    Because many of the investors who are expected to participate in the stock program are the same executives who were running the banks at the time of their near collapse, critics see it as a case of bankers being rewarded despite their management missteps. And they say the Greek government is forgoing billions of euros in potential revenue with the way the stock offering is being handled.