BERLIN, Jan 19 (Reuters) - A new economics advisor to German Chancellor Angela Merkel’s government was quoted on Wednesday as saying Greek debt would need rescheduling or restructuring while increasing the euro rescue fund would be difficult for Germany.
Lars Feld, an economist who has been designated by the cabinet as a member of its team of “wise men” from March, was quoted by three German newspapers’ previews or online versions as saying some form of rescheduling of Greek debt was inevitable.
“I don’t believe Greece will manage without a cut in its debt. And then German guarantees will be needed,” the business daily Handelsblatt’s website quoted the 44-year-old director of the Walter Eucken Institute in Freiburg as saying.
Die Welt quoted the economics professor as saying: ”I know hardly anyone who believes Greece can make it on its own.
The German government earlier on Wednesday denied reports it was planning for a Greek debt rescheduling, though sources said the German finance ministry was working on contingency plans in case Greece has to default or restructure. [ID:nLDE70I158]
Feld said the German government should take precautions to ensure that any fiscal impact from providing guarantees for this does not violate the new German “debt brake” law.
This law, which came into effect at the beginning of 2011, stipulates that Germany has to cut its structural deficit to 0.35 percent of gross domestic product by 2016.
“So only if the finance minister plans for an outcome and makes appropriate savings will he avoid coming into conflict with the debt brake law,” Feld was quoted as saying.
Feld was also quoted by the Frankfurter Allgemeine Zeiting newspaper as saying he doubted Greece could meet debt payments and that Greece and Ireland would need a debt rescheduling or restructuring rather than long-term rescue facility.
The paper, in a short preview of an interview due to be published on Thursday, used the German word “Umschuldung” which can mean either rescheduling or restructuring.
The Frankfurt paper gave no more details about his thoughts on Greece but quoted him saying raising the European Financial Stability Facility (EFSF), a euro zone rescue fund set up last May, would involve “costs and risks” for Germany.
In the Die Welt interview he said there were already signs on the markets that “the interest rates that Germany has to pay for new debt have risen further recently”.
Feld suggested that increasing the EFSF, which was announced last May as being worth 750 billion euros in total but has a much lower real lending capacity because of its guarantee system, could require a European Union-wide referendum.
Reporting by Stephen Brown; Editing by Ruth Pitchford