June 27, 2011
Former Bundesbank chief Axel Weber said Europe needs to consider guaranteeing all Greece's outstanding debt because Athens's only viable alternative is a messy default that would be more costly and risk sparking broader financial turmoil.
Mr. Weber, in his first interview since leaving the Bundesbank and the governing council of the European Central Bank at the end of April, said Europe's response to the crisis so far addressed Greece's immediate funding needs without offering the country a credible, long-term resolution for paring its growing mountain of debt.
That uncertainty is fueling fears that Athens will be forced into a messy default and has destabilized markets.
"Ultimately, solving the Greek debt problem will have to deal with the outstanding, past amount of debt, and there are, unfortunately, only very limited options: Either a default or partial haircuts or a guarantee for the outstanding amount of Greek debt," Mr. Weber said. "Governments have to decide which option they want to go for, but the current piecemeal approach of repeated aid programs inevitably leads to the latter solution."
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