Return to the Drachma? Economists Warn Greece May Have to Quit Euro
Greece's debts are rising rapidly despite radical austerity measures. Now a group of leading European economists has warned that creditors might have to write off more than 30 percent of their loans. Greece might even have to reintroduce the drachma to overcome its debt crisis, they argue.
The European Economic Advisory Group (EEAG), a group of leading European economists, has warned that Greece may need another bailout by 2013 at the latest.
The Greek government has so far stressed that it will "pay back every cent" and will start reducing its debts in 2014 at the latest.
The EEAG recommends drastic steps to prevent the EU from having to provide Greece with long-term aid: Greece should either return to its national currency, the drachma, or launch even tougher austerity measures, including general cuts in wages and salaries.
According to a Süddeutsche Zeitung article published on Tuesday, leading banks are already giving up hope that Greece will be able to pay back all its debts. Thomas Mirow, the head of the European Bank for Reconstruction and Development, believes a Greek debt restructuring is unavoidable.
"It is doubtful that Greece will be able to bear a debt ratio of more than 150 percent over the long term," Mirow told the Süddeutsche. "The markets have been pricing in a debt restructuring for some time. The ratio should be lowered to 100 percent so that the country can overcome its problems." That would mean creditors would have to forego more than 30 percent of their loans.
New Worries About Portugal, Spain
Portugal's finances are also causing fresh concern. The country will have to refinance some 4.3 billion ($5.8 billion) in bonds in April. Many market participants expect that the interest on the bonds will be so high that Portugal will have to seek help from the European Union's euro rescue fund.
"Portugal is tackling fiscal rebuilding to achieve its fiscal reform targets. The situation is different from Greece and Ireland," Portuguese Finance Minister Fernando Teixeira dos Santos said during a visit to Japan, Reuters reported on Tuesday.
Meanwhile, the Spanish central bank announced Monday that Spain's savings banks have outstanding real estate loans of 217 billion -- of which up to 100 billion has to be classified as toxic.
cro -- with wire reports
Stay informed with our free news services:
© SPIEGEL ONLINE 2011
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH
Corriere della Sera
MORE FROM SPIEGEL INTERNATIONAL
German PoliticsMerkel's Moves: Power Struggles in Berlin
World War IITruth and Reconciliation: Why the War Still Haunts Europe
EnergyGreen Power: The Future of Energy
European UnionUnited Europe: A Continental Project
Climate ChangeGlobal Warming: Curbing Carbon Before It's Too Late