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German economists: Greek debt haircut cheaper than Grexit … for Germany

Less than three weeks before elections in Greece and nervousness rises among the country’s lenders as  SYRIZA’s chances for a victory remain high and the left-wing party favors a debt haircut. The Grexit scenarios have grown wild as billions of euros in loans are at stake. Leading role in the Grexit scenarios has Germany and the conservative part of its coalition government that has eagerly adopted Antonis Samaras’ slogan that SYRIZA will push Greece out of the eurozone. However, the cost of debt hair cut is much cheaper than a Grexit, two German economists have calculated.

A debt write off will cost Germany 40 billion, but a Grexit will cost 76 billion euros.

This result comes from an article of German Frankfurter Allgemeine Zeitung,  quoting two German economists. a conservative daily always loyal to Christian Democrat Party (CDU) of Chancellor Angela Merkel,

Economist Jens Boysen-Hogrefe is member of the Kiel Institute for the World Economy (IfW), an economics research center and think tank located in Northern Germany.

By a Greek haircut the German state budget would suffer greatly. Financial expert, Jens BoysenHogrefe estimates the potential losses for Germany, one of the main creditors of Athens, will be up to 40 billion euros, should Athens insists on a haircut, that would sink its debt ratio from current 175% to 90%.

“If Greece does not serves its debt anymore, the cost would be even higher, notes the FAZ, adding that another Institute for Economic Research, the Ifo Institute calculates the cost of a Grexit as much higher.

The Ifo Institute has added further costs that would be incurred if Greece not only goes for a haircut, but it exists the euro (Grexit”).

If Greece becomes insolvent and leaves the euro, the Federal Republic would expect a loss of up to 76 billion euros,” said economics professor Timo Wollmershäuser from the Ifo Institute for Economic Research.

What I find most interesting is that head of the Ifo-Institute is professor Hans Werner Sinn, who has been a fierce supporter of Grexit since the crisis began in 2010.

In interesting summary of Germany’s busy Grexit days you can read here.

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