Greece should have been given a debt haircut in 2010, not two years later, the former chief economist of the European Central Bank has said.
In an interview with German public radio Deutschlandfunk, Juergen Stark, who resigned from the bank in early 2012, also criticized the ECB’s approach in general to the euro crisis.
He said he was skeptical whether Greece will remain on course in the coming decades without any problems.
Of primary concern for European public opinion is whether Greece can repay the massive loans it has been given. “This is what the lenders hope for,” the German economist said.
“Each side – the lenders, that means the European taxpayer, and heavily indebted Greece – sees things differently. However, as it now looks, Greece will repay its debts with interest by 2060, with a break in the meantime. It won’t repay any debt until 2032, when the lenders will take another look at the situation … to see if debt sustainability remains. So, a breather of 15 years has been given. During this time there should be no upsets as upsets are not foreseen.”
The economist said that Greece should have been given a debt haircut two years earlier, in 2010, because it was bankrupt.
“To save Greece, we violated Maastricht,” as the private creditors were replaced by public creditors.
“Had we carried out the debt haircut then, we would have let Greece go, and the whole adjustment process would have taken place outside the eurozone,” he said.
“That would have avoided the huge losses or high costs for the monetary union because during the Greek crisis we had to reform the monetary union. To help Greece, we had to violate the Maastricht treaty. That was a huge political burden for me.”
Stark agrees with the IMF and EU creditors that the list of reforms has not been exhausted, that the debt remains high and the banks problematic. He also said capital controls remain, unemployment is at 20 percent and necessary reforms have only half-hearted support of governments.