“This tragedy does not have a solution,” said Hans-Werner Sinn, head of the prestigious IFO Institute in Munich.
“Greece would have been bankrupt without the rescue measures. All the alternatives are terrible but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks,” he said.
“The policy of forced \’internal devaluation\’, deflation, and depression could risk driving Greece to the edge of a civil war. It is impossible to cut wages and prices by 30pc without major riots,” he said, speaking at the elite European House Ambrosetti forum at Lake Como.
The thing is though, I\’m not sure that either a partial default (or \”renegotiation\”) or an exit from the eurozone would kill the Greek banks.
Depends how their books are balanced….but it certainly would kill a number of French and German banks who are holding large amounts of Greek sovereign debt.
Which is rather why, over and above that Euro insistence that the euro must never shrink, is why the bailout rather than the default and the haircut.