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German experts say Greece needs further haircut: report
August 13, 2011 / 4:40 PM / 6 years ago

German experts say Greece needs further haircut: report

ATHENS (Reuters) - Two senior German economists said on Saturday that a second EU bailout for Greece agreed last month is not enough to make its debt viable and that bondholders will have to incur even deeper losses.

The agreement, which imposes a 21 percent loss on private holders of Greek bonds as part of a 109-billion-euro aid package, falls short of the country’s needs, Clemens Fuest, a senior adviser to the German finance ministry told weekly newspaper Real News.

“The agreement of July 21 is clearly insufficient to reduce Greece’s debt to a viable level,” the newspaper quoted Fuest as saying. “I believe that a further ‘haircut’ is unavoidable.”

Fuest is a professor at Oxford University and a member of the ministry’s academic advisory board.

The deal struck by EU leaders is seen reducing Greece’s public debt mountain from 166 percent of GDP next year to 144 percent in 2020.

More than half of Greece’s debt will have to be written off to make it viable, said Michael Schroeder, an economist at Germany’s ZEW economic research institute according to the newspaper.

“The July 21 deal will have to be strengthened by a further haircut of at least 50 percent,” Schroeder wrote in Proto Thema.

Greece last year kicked off Europe’s debt crisis by becoming the first eurozone country to seek a 110 billion euro EU/IMF bailout to avoid default. Greece’s credit ratings are currently one step short of default.

(This story corrects the name of the newspaper)

Reporting by Harry Papachristou; editing by Patrick Graham

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