Why Greece Can't Shoulder Debt, but Spain Can

Greece will have to restructure its debt, but Spain is out of the woods, according to former European Central Bank Board Member Otmar Issing.

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“Greece has now more than 300 billion euros in foreign debt, so any calculation shows that for Greece it is impossible to shoulder that," Issing said. "I think what is most important is that restructuring is happening only when other countries are out of the fire, so that you don’t have contagion effects.”

"I don’t think there is any illusion that Greece would ever able to fully able to deliver on the debt in its present conditions,” Issing told CNBC.

As Portugal’s parliament prepares to vote on new austerity measures and the main opposition threatens to topple the government, Issing said Lisbon will have to turn to the European Union for help.

“It’s obvious, and I think it will be decided in this political state," he said. "This, of course, is very unfortunate. I think if a country is in difficult times, one should have an old partisan coalition to do it better in the future.”

The man who played a lead role on the ECB’s governing council for 8 years said the worst is probably over for Spain.

“I would say that Spain is now out of the woods. But this still has to be put on sustainable paths. We still have to wait some time before markets are convinced.”

The Price of Help

Issing said the proposed increase in the European Financial Stability Fund’s firepowerwill be helpful, but only if tied to reforms for which Germany and France have been pushing.

“I am not so much concerned about the big sum that is to be invested," he said." The question is what is to be done with this money. To me it is key that credit from this fund is only given against obligations to do reforms.”

“There must be a quid pro quo.This is financial help to help yourself, to bridge problematic situations and nothing else.It must not be a transfer mechanism which supports bad macroeconomic policies in member countries.”

As the EU prepares to sign off on cheaper loans for Greece and possibly Irelandat Thursday's EU heads of state summit in Brussels, Issing said help from the EFSF should come at a price for those in trouble.

“It must not be cheap because there is taxpayer money at risk,” Issing said.