World Economy

IMF must help Europe with ‘aggressive’ Athens: Ifo

Greece needs to cut wages or pensions: Ifo president

Greece's far-left government have proved "aggressive" in lengthy cash-for-reforms talks, the head of an influential German think tank told CNBC, adding that all of Athens' bailout supervisors must share the strain of negotiating.

"You have seen what kind of wording Greece used during the crisis to really change the mood in Europe and I think it's fair to say they have been aggressive," the president of the Ifo Institute for Economic Research, Hans Werner-Sinn, told CNBC on Wednesday.

He added: "It is easier for the Europeans if the IMF (International Monetary Fund) shares in the burden of absorbing this attitude, rather than everything being imposed on the other European countries – this is a recipe for hassle and strife."

Greece is engulfed in debt to both the European Central Bank and the IMF and needs urgent aid to save it from defaulting on a 1.6 billion euro ($1.8 billion) debt at the end of the month. However, it has fought against creditors' demands for further economic, social and political cuts and reforms.

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"The IMF is skeptical about the Greek proposals as I understand. They say the Greeks promised to increase their taxes, but they have not been very good in raising taxes in the past. So it's more credible if they promise to cut wages or government employees or pensions and that is the issue about they are discussing," Sinn told CNBC.

In addition to his role at Ifo, Sinn is an adviser to the Germany economy ministry and a professor of economics and public finance at the University of Munich. He is due to retire from Ifo in March 2016.

The veteran economist has previously advocated the benefits for Greece of leaving the euro zone and he reiterated this view on Tuesday.

"A 'Grexit' is a rescue strategy for Greece because the Greek people will, with the drachma (the Greek currency prior to the adoption of the euro) devaluation, then have more demand for their own products. The imported products will become more expensive and they will go to their farmers, for example," Sinn told CNBC.

The possibility of a Grexit loomed closer on Wednesday, after Athens' international creditors rejected the Greek government's proposals for an aid-for reforms deal.

The IMF—which is viewed as the most hardline of the bodies in negotiations with Greece—has put forward counterproposals, according to media reports.

Sinn was skeptical that any deal would solve Greece's problems, which include sky-high unemployment, an overly high currency, staggeringly high debt and highly inefficient tax collection.

"Even if we wipe out the entire debt of Greece, the country would always need more credit from abroad," Sinn told CNBC.

"Greece, I think, cannot stand on its own foot because it has chronic trade deficit, even though it has a mass unemployment. If the employment would increase, the trade deficit would be even bigger because there would be more imports," he added.

This month, Reuters reported that senior European Union officials had formally discussed the prospect of a Grexit for the first time.

This came after IMF representatives walked out on talks with Greece in Brussels, citing "major differences."