"Greece is insolvent… and we are delaying the process of declaring
insolvency which would be illegal if it was a private company," the president of Germany's influential Ifo Institute for Economic Research told CNBC on Thursday.
"It is time for a big (debt) haircut and more radical measures to help Greece."
Hans Werner-Sinn has been in favor of Greece leaving the euro, saying that it is difficult to see how Greece could resolve its problems while remaining in the eurozone. At the same time, he added that any exit does not have to be permanent.
It is much better to have a more flexible euro where someone can leave for a while and come back later with a devalued currency, rather than imposing the devaluation internally, he noted adding that "This is a recipe for maximising unemployment and turmoil."
Negotiations between Greece's anti-austerity government and its international creditors over unlocking 7.2 billion euros ($8 billion) of aid have been deadlocked on the subject of reforms.
If the talks fail, the government has said it will prioritize the payment of wages and pensions over meeting its debt repayments. Payments totalling about 1.5 billion euros ($1.7 billion) are due to the IMF next month, with a 305 million euro payment due on June 5.
The grim state of Greek finances was underlined last week when the government said it emptied an IMF holding account to repay 750 million euros due to the global lender. Meanwhile, on Wednesday a Greek government official warned that Athens will be unable to make a €305 million payment to the International Monetary Fund due on June 5 if a cash-for-reforms deal with its international lenders is not reached by then.
Valdis Dombrovskis, vice-president for the euro and social dialogue at the European Commission, is confident the bailout program must be completed.
"From a European Commission point of view, we are working on the assumption that the best scenario is the successful completion of the current bailout program," he said. "This is what would allow a turnaround in the Greek economy and allow jobs to be created."
