While Greek Prime Minister Antonis Samaras said austerity has helped put the country on the road to possible recovery and a return to the markets next year, the German Institute for Economic Research (DIW) said Greece’s debt is unsustainable despite $325 billion in two bailouts.
“Greece is still insolvent,” said Ferdinand Fichtner, head of the forecasting and economic policy department at DIW. “So another bailout won’t help them with their debt problems, but a haircut would,” he said.
There is speculation that Greece needs another $11-$14 billion while the government is hoping to stiff its international lenders with losses to cut its debt as it did to public investors.
“I don’t think policymakers will be able to explain to the public that we have an actually loss of money,” Fichtner said according to the Washington Times. “Previously, they were saying, ‘We are just lending money to Greece, but we will get it back.’”
Without a haircut or some sort of debt restructuring, Greece is doomed to repeat the mistakes of the past, Fichtner said. “I would expect that the third bailout would probably not be the last one,” he added.
German Chancellor Angela Merkel, whose country is the biggest contributor to the bailouts – but only in return for harsh austerity measures – is facing re-election on Sept. 22 and said she would not allow Greece to write down its debt by sticking the taxpayers in the other 16 countries of the Eurozone with the tab.
“You can sell these tough decisions after you have won the elections and are in office again,” said Annette Heuser, Executive Director of the Washington office at the Bertelsmann Foundation, a German think tank. “That’s the window of opportunity, and there is no doubt that Merkel will use it,” she said.
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