A complete collapse of the euro would shave up to 10 percent off the German economy and even just the departure of Greece from the currency club bears substantial risks to business, according to government economic advisor Lars Feld.
Feld, one of five “wise men” economists whose views help shape the public debate in Germany but often have little direct impact on policy, said recent estimates by the group suggested Germany's gross claims from the euro zone are about 3.5 trillion euros.
“When a good part of the claims would go in default, there would be insolvencies in small and medium-sizes firms and the economy would be hit,” Feld told a Frankfurt journalist club Wednesday night in remarks slated for publication on Thursday.
“This drop could amount to 7 - 10 percent of the (German) gross domestic product (GDP).”
A Greek exit could also not be achieved without substantial costs, Feld said and added that the risk of contagion via the banking system had been reduced, but there was still a strong risk that Greece's exit could prompt investors to expect other countries to follow suit.
A number of German officials have been talking up the options of pushing Greece - which is largely being kept afloat by funds from the German government - to drop out of the euro.
Chancellor Angela Merkel and allies remain firmly against that idea.
Feld also said that there are few options to solving the crisis, “and many of them are not especially pretty”.
He also said that he expected the German economy to grow about 0.8 to 0.9 percent this year, with third and fourth quarters seeing no growth or contraction. - Reuters