26th Jun 2017

German economist: Greece should default now

  • The first aid package for Greece is not proving sufficient (Photo: jay bergsen)

Letting Greece default now rather than in a year's time would be cheaper and would help the country more than a second aid package currently under discussion, a German economist and former official with the European Central Bank (ECB) has said.

"There is a consensus now in the German economic academic community that a haircut or a partial default in Greece is necessary," Ferdinand Fichtner, an economist with the German Institute for Science (DIW) and a former ECB official told a group of Brussels-based journalists in Berlin on Wednesday (12 May).

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

In his view, prolonging Grecee's agony by another year would only make the inevitable haircut more expensive, as "private creditors will be more and more replaced by public ones, meaning the ECB."

"In the end, it will be more expensive for the public sector rather than the private one if politicians don't react quickly and agree on a haircut sooner rather than later," he argued.

But he admitted that among German policy makers - perhaps with the exception of finance minister Wolfgang Schauble - and ECB officials there is no consensus on letting Greece default.

One explanation, in Fichtner's view, is that the ECB has at least €50 billion of Greek government debt on its books, while Germany 'only' holds around €20 billion.

As for the outgoing ECB chief Jean-Claude Trichet, whose term ends in October, he should "admit that it was a mistake to insist that Greece would not default," rather than leave it to his successor, most likely Mario Draghi.

"We need default regulations and insolvency rules for euro area countries, otherwise we will run into the same problems in the future," he added, echoing calls from Schauble made one year ago that the euro-area needs clear rules for what he called "orderly debt restructuring."

On Thursday, Schauble reassured members of the German legislature that Portugal will not become as bad as Greece.

He also suggested that Greece may need a second aid package - the first time the German government has talked openly about what has only been rumoured in the past weeks.

"We will not be able to agree to further measures without clear conditions," he said, insisting that Greece will have to do more.

An eagerly awaited report by the ECB, the IMF and the European Commission is expected to give clarity in June if the Greek government has been unable to deliver on its austerity commitments or if the conditions were simply too hard to meet and the spiral of austerity, low tax collection and lack of economic growth impossible to escape from.


China's slow foray into Central and Eastern Europe

Half a decade after it was launched, the network of cooperation between China and 16 Central and Eastern European countries has brought uneven economical and political fruits so far.

UK previews offer on EU nationals' rights

EU nationals in the UK could get almost the same rights as British people after Brexit, but an EU deal might not happen, the British government has said.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.


Cheap meat is a bigger problem for climate and health

A leading scholar of sustainability issues has called on the EU to introduce protectionist food policies that impose tough health and environmental standards in order to stop the imports of cheap and poor quality meat.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

News in Brief

  1. British PM closes government deal with Northern Irish party
  2. Merkel on collision course with US at G20 summit
  3. Schulz outlines German election strategy, hits out at Merkel
  4. Berlusconi's party sees comeback in Italian local votes
  5. Low turnout in Albanian election set to mandate EU future
  6. Merkel and Macron hold symbolic joint press conference
  7. Juncker has 'no' clear idea of kind of Brexit UK wants
  8. Belgian PM calls May's proposal on EU citizens 'vague'

Stakeholders' Highlights

  1. Malta EU 2017Conservation of Atlantic Tunas: International Measures Become EU Law
  2. European Healthy Lifestyle AllianceCan Statin Therapy Interfere With a Physically Active Lifestyle?
  3. EPSUOn Public Services Day, Stop Austerity! Workers Need a Pay Rise!
  4. EGBAOnline Gambling: The EU Court Rejects Closed Licensing Regimes In Member States
  5. World VisionFaces of Today, Leaders of Tomorrow: Join the Debate on Violence Against Girls - 29 June
  6. ECR GroupThe EU Must Better Protect Industry from Unfair Competition
  7. Malta EU 2017Better Protection for Workers From Cancer-Causing Substances
  8. EPSUAfter 9 Years of Austerity Europe's Public Sector Workers Deserve a Pay Rise!
  9. Dialogue PlatformGlobalised Religions and the Dialogue Imperative. Join the Debate!
  10. UNICEFEU Trust Fund Contribution to UNICEF's Syria Crisis Response Reaches Nearly €200 Million
  11. EUSEW17Bringing Buildings Into the Circular Economy. Discuss at EU Sustainable Energy Week
  12. European Healthy Lifestyle AllianceCan an Ideal Body Weight Lead to Premature Death?

Latest News

  1. China's slow foray into Central and Eastern Europe
  2. Estonia presidency and Google fine This WEEK
  3. UK previews offer on EU nationals' rights
  4. EU approves rescue of Italian banks
  5. Cohesion policy for a stronger Europe
  6. Cheap meat is a bigger problem for climate and health
  7. Ministers to reject minimum parking spaces for electric cars
  8. Macron’s investment screening idea watered down by leaders