The 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.”