Europe must let Greece exit the euro zone and go bankrupt because that would be the best for both, said President of Germany’s Ifo Institute for Economic Research Hans Werner-Sinn. Speaking to CNBC on Monday, the German economist said that it would be more risky for Europe to keep Greece in the euro zone than let a Grexit happen. But getting out of the euro zone would be beneficial for the debt-ridden country as well. “I would say, in the end, a (Greek exit) is also desirable, because if one accompanies this exit with the help of the European community, with the promise to keep the gate open for Greece to return at a later point in time, this may well be a chance to regain the competitiveness of the country by devaluation,” Werner-Sinn told CNBC Europe’s “Squawk Box.” Negotiations between Greece and international creditors are in a deadlock as lenders want to see reforms in exchange of further financial aid. The Greek government is refusing to implement certain austerity measures creditors suggest. Meanwhile, the country is running perilously out of cash and Athens is struggling for partial fund disbursement. Ifo’s chief has often expressed the opinion that Greece’s exit from the common currency bloc would help the country by offering a chance to improve competitiveness and stimulate employment. Werner-Sinn says European Union member countries are afraid there might be a domino effect if Greece leaves the euro zone, thereby trying to keep the country in the common currency. However, he says, there is great political risk in that: “There is contagion of a political kind if Greece stays in the euro because it would tell us that you don’t have to obey rules, that money will always be available if you make mistakes and are not competitive. But this cannot be the case,” he said. “We have to allow for bankruptcy in the European Union, just as the Americans do it. If California goes bust, for example, no one will help — the U.S. Federal Reserve will not come to buy Californian government bonds…We need principles like that in Europe,” he added. The aim of the Ifo Institute is to conduct empirical research in the fields of economics and social science, and to supply data, information and research results in economics and economic policy.
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