ECONOMY

Debt load seen being too heavy

As Greek Prime Minister George Papandreou met with German Chancellor Angela Merkel on Tuesday, voices grew predicting Greece?s debt restructuring and possible exit from the eurozone.

Hans-Werner Sinn, head of Germany?s Ifo research institute, said that Greece is likely to be forced into restructuring its debt because other options for overcoming the crisis aren?t feasible.

European Union governments won?t flood Greece with financial aid, exiting the euro would wreck Greece?s banking system and a 20- to 30-percent cut in domestic wages to restore competitiveness would trigger civil disorder, Sinn said. ?I see a general opinion now that Greece will not be able to service its debt,? Sinn in Brussels on Tuesday. ?We have to help here via a haircut.?

Greece?s debts are likely to be more than 156 percent of gross domestic product (GDP) when a 110-billion-euro EU-led aid package runs out in 2013, according to EU forecasts.

Sinn said European governments are making a mistake by banning talk of a possible Greek restructuring – with losses for private bondholders – from their public rhetoric. While quitting the euro isn?t a ?taboo,? it would ravage Greece?s banking system, he said.

More talk of Greece being unable to sustain its debt came from European Bank for Reconstruction and Development President Thomas Mirow in an interview to Germany?s Sueddeutsche Zeitung.

?It?s doubtful that Greece can bear a debt ratio of more than 150 percent for any length of time,? Mirow said. ?Markets have priced in a restructuring for a long time now.?

Meanwhile, 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.

Greece?s current savings program won?t suffice to cope with its debt problems, the EEAG said on Tuesday.

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.