Petros Doukas, who served in the finance ministry under former premiers Konstantinos Mitsotakis and Costas Karamanlis, said Greece will have to give its international lenders at least a 40 percent loss – a so-called “haircut” – because despite $325 billion in two bailouts they’ve put up that there is no way the monies can be fully repaid.
He refuted assertions from German Finance Minister Wolfgang Schaeuble, who was visiting Athens to meet Prime Minister Antonis Samaras, that the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) would never accept Greece writing off any part of its commitments as it did with private investors, making them take a 74 percent hit in 2011.
“The money cannot be repaid,” Doukas told CNBC in an interview. “It’s not easy for all the governments to swallow, and I understand that the taxpayers of European countries will not be able to swallow it easily, but it’s a fact of life.”
His comments came after Schaeuble told Greece to stop asking for more aid and focus instead on enacting the reforms agreed to as part of its bailout program. “I would like to ask all of you not to continue with this discussion about a new haircut, as it’s not in your interest,” he said.
He argued that writing off some of the bailout loans Greece owes would undermine confidence in Europe’s rescue programs by proving they are not reliable,” he said.
Schaeuble added: “You will destroy any confidence … if you take guarantees and then you are discussing a haircut — then you are a liar. And I’m not a liar.” He also said that: “My advice is that everyone concentrates on … doing what we have agreed, because only if we implement what we agreed, step-by-step, can we regain reliability, trust and through that, growth.”
“If Greece (towards the end of 2014) has implemented its reforms and has reached a primary surplus, then we will negotiate further measures if necessary,” he said.
Greece’s debt-to-GDP ratio stood at 156.9 percent at the end of 2012, and the country is now in its sixth year of recession. “There is no way around structural and fiscal reforms that are currently being carried out. The only way to achieve sustainable growth is to make the economy competitive and reduce public deficits,” Schaeuble said.
“There is no convenient shortcut. We Germans know this. Ten years ago we were the sick man of Europe. We had to take a long and painful path to become the very center of growth and anchor of stability in Europe.”
Laurent Fransolet, head of European fixed income research at Barclays, said Schaeuble’s comments meant there would be no new aid for Greece in 2013, but another restructuring could happen in 2014.
But Doukas said Schaeuble’s comments weren’t credible and were driven by political considerations ahead of Germany’s national election in September.
“It’s not a very credible statement because in my humble opinion [Greece’s] debt cannot be serviced and repaid as is. The economy is sputtering, the economy is faltering, there is no new incomes being generated, so I don’t see how that debt can be serviced,” he said.
The Athens prosecutor’s office in March issued charges against Doukas after noting that the savings he declared for 2010 were 1.1 million euros ($1.44 million) lower than 2009.