BERLIN (MNI) – The crisis in Greece can only be solved if it leaves
the Eurozone, Hans-Werner Sinn, the President of Germany’s Ifo economic
research institute, said Wednesday.

“A haircut on Greece’s sovereign debt wouldn’t solve the problem,”
Sinn said at an Ifo event here, arguing that the country’s main problem
is its persistent high current account deficits due to a lack of
competitiveness.

“Greece needs to lower its prices and wages by at least 30% if it
wants to regain its competitiveness inside the Eurozone,” the Ifo
president explained. “This is impossible, it would tear the country
apart,” he asserted.

“Greece will only get out of its current mess if it leaves the
Eurozone, and converts its sovereign debt into drachmas which would then
devalue,” Sinn argued.

The Ifo head rejected the widespread assumption that the current
crisis is mainly a debt crisis. “It is a systemic crisis of the euro,”
due to the marked current account imbalances in the Eurozone, he said.

With its participation in the EU-IMF rescue operations for the
highly indebted Eurozone states, Germany is undermining its
creditworthiness, Sinn warned.

He noted that Germany’s insurance premium for ten-year government
bonds rose to 124 basis points in September. “The German premium was 17
times what it had been in the first half of 2008,” he observed. “The
markets are assuming that Germany might overextend itself.”

German Finance Minister Wolfgang Schaeuble on Tuesday stressed his
opposition to increasing the size of the European Financial Stability
Facility (EFSF) even further than currently planned, arguing that this
could put the AAA ratings of some EMU member states at risk.

Sinn also noted that the Target credits, which the Deutsche
Bundesbank has made available to the ECB in order to permit the
countries of the Southern periphery to print more money to finance their
current account deficits, reached E390 billion in August. In August
alone, the credit volume rose by E47 billion, he pointed out.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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