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Can Europe resist Greek demands for a debt haircut?

As Greece's new Prime Minister Alexis Tsipras settles into running government, euro zone leaders have rushed to dismiss talk of any haircut or forgiveness of Greek debt, but economists are already wondering how long Europe's resistance can last.

Tsipras became prime minister after his party won a snap general election on Sunday, dramatically ousting the New Democracy party and its leader Antonis Samaras from power.

Samaras oversaw tough austerity measures that were imposed as part of a 240 billion euro ($271 billion) bailout terms agreed with the so-called troika, comprising the European Commission, International Monetary Fund and European Central Bank.

The left-wing party Syriza -- which is joined in a coalition government by the right-wing Independent Greeks party -- has said it will repeal unpopular austerity measures, rehire fired public sector workers and aim to get lenders to write off a third of Greece's debt.


A view of Athens
nabilishes@Nabil z.a. | Moment | Getty Images
A view of Athens

Despite euro zone resistance to such a demand, the region's leaders might not have much of a choice, according to economist.

"Really, Greece needs a haircut," Philippe Legrain, a former economic advisor to the President of the European Commission, told CNBC Tuesday. "Greece's debts are unsustainably large."

'German propaganda'

On Monday, euro zone leaders did not delay in making their feelings on any possible debt haircut known to Syriza.

The head of the European Commission, Jean-Claude Juncker, reminded Tsipras of the need to "ensure fiscal responsibility" while German Finance Minister Wolfgang Schaeuble ruled out a debt haircut for Greece on Monday, telling ARD Television that Greece was not "overburdened by its debt servicing," as Syriza argue.

However, Legrain dismissed Scheuble's comments as "propaganda" and criticized the Berlin government for "saying that this is somehow a bearable burden and that the interest costs are low. But to bring its debts down to 60 percent of GDP – in order to meet the terms of the fiscal compact -- Greece would require a primary surplus (where government income exceeds spending) of 9 percent (of GDP)."

Greece has the highest debt to GDP ratio in the euro zone, at 175.5 percent in 2014, according to forecasts by the European Commission. It also has the highest unemployment rate, at 25.7 percent in November– more than double the euro zone average of 11.5 percent.

At the end of February Greece's bailout package ends, meaning that the Greek government now needs to act fast in order to extend its program – and, crucially, to prevent a liquidity crunch.

Showing that Greece had made progress in reducing spending but has not gone as far as lenders would like it to, the country eked out a primary budget surplus of 1. 9 billion euros in 2014 ($2.25 billion) -- short of a troika-set target of 4.9 billion euros, however.

Legrain believed it was "politically inconceivable" that Greece would then transfer that 9 percent of GDP to "hated foreign creditors, with all the depressing impacts that would have on the economy."

Bailout deadline looms

Meanwhile, another former Bank of England policy committee member, Andrew Sentance, believed that the previous Greek government had "done an awful lot to get the deficit down."

"I think there is some argument to be made that some alleviation of Greece's problems is needed but whether that happens by slowing the process of debt repayment or whether it's a kind of debt forgiveness is up for discussion," Sentance, who is currently a senior economic advisor at PwC, said.

Showing that there might be room for maneuver and negotiation, the chairman of the euro zone group of finance ministers, Jeroen Dijsselbloem, said they were ready to work with Syriza. He also said it was too early to comment on the party's policies.

One of the members of the euro group, Belgian Finance Minister Johan van Overtveldt, told CNBC on Monday that the troika was waiting for Syriza's next move.

"There might be some difference between the electoral rhetoric and what is actually put on the table once negotiations start (between Tsipras and the troika)."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld.