Lars Feld: states must take bigger Greece haircut

States that have lent to heavily indebted Greece should take a haircut on their loans to boost private sector efforts to restructure Athens’ debt, an advisor to the German government said on Tuesday.

Lars Feld, one of five «wise men» economists whose views help shape the public debate in Germany but often have little direct impact on policy, told Reuters that the current private sector haircut under discussion would leave the struggling eurozone member under duress.

“Private creditors foregoing a cash value in the amount of 70 percent will probably not be enough to help the Mediterranean country out of its debt trap,» he told Reuters.

“All public creditors are asked to take a certain haircut. In Germany’s case it would mean (state development bank) KFW should renounce capital it has lent to Greece.”

The advice flies in the face of Germany’s current position, which the finance ministry on Monday said excludes the very discussion of a public sector contribution in light of the efforts sovereign states have already focused on Greece.

Feld also discounted a proposal floated by some officials in Germany to create a new euro zone «budget commissioner» with the power to veto budget decisions taken by the Greek government.

The idea, which would see a European commissar take control of Athens’ public finances to ensure it meets fiscal targets, caused outrage in Greece. Finance Minister Evangelos Venizelos said that to make his country choose between national dignity and financial assistance ignored the lessons of history.

“A ‘savings commissioner’ may be a good scare tactic, but it would be utopian to think there would be a real oversight function for a sovereign state such as Greece.”