Germany bracing for Greek default

A new economics adviser to German Chancellor Angela Merkel's government was quoted yesterday saying Greek debt would need rescheduling or restructuring, while increasing the euro rescue fund would be difficult for Germany.
Lars Feld, an economist picked by the cabinet for its team of "wise men," was quoted by German media saying that some form of rescheduling of Greek debt was inevitable. "I don't believe Greece will manage without a cut in its debt. And then German guarantees will be needed," Handelsblatt's website quoted the 44-year-old director of the Walter Eucken Institute in Freiburg as saying.

Die Welt quoted the economics professor saying: "I know hardly anyone who believes Greece can make it on its own."
Earlier yesterday, the German government denied reports it was planning for a Greek debt rescheduling, though sources said the German finance ministry was working on contingency plans in case Greece has to default or restructure.
Feld said the German government should take precautions to ensure that any fiscal impact from providing guarantees for this does not violate the new German "debt brake" law. This law, which came into effect at the beginning of 2011, stipulates that Germany has to cut its structural deficit to 0.35% of gross domestic product by 2016.
"So only if the finance minister plans for an outcome and makes appropriate savings will he avoid coming into conflict with the debt brake law," Feld was quoted as saying.
The Frankfurter Allgemeine Zeiting quoted Feld saying Greece and Ireland would need debt rescheduling or restructuring rather than long-term rescues. He also said, according to the Frankfurter, that raising the European Financial Stability Facility, a euro-zone rescue fund set up in May, would involve "costs and risks" for Germany. In the Die Welt interview, he said there were already signs the interest Germany has to pay for debt has risen recently.