“We can't allow ourselves the illusion that Germany can live better if the negotiations fail,” Marcel Fratzscher, president of the German Institute of Economic Research (DIW) told dpa in Berlin.
“Greece would rely on European help for years, and humanitarian aid too.”
The radical-left Syriza government has until the weekend to come up with sweeping reform proposals for the Greek economy to satisfy the country's creditors, the European Commission, International Monetary Fund (IMF) and European Central Bank (ECB).
Prime Minister Alexis Tsipras promised to have his proposals ready and on his opposite numbers' desks by Thursday, in advance of a meeting of eurozone finance ministers on Saturday and all 28 EU heads of government on Sunday.
“Perversely, a third [financial aid] programme has become indispensable because of the Greek negotiating strategy,” Fratzscher said. “The Greek government has run the economy into a wall.”
Fratzscher added that “German taxpayers would have to write off much more money” if Greece were plunged into a five- to ten-year depression after leaving the single currency.
Neither would a return to Greece's former currency, the drachma, help them out of the crisis.
“This is economic nonsense. We Germans know all too well that you can't create prosperity with a soft currency,” Fratzscher said.
Ultimately it would be down to Greek leaders to completely overhaul their country's economy, as its problems are not simply down to the strong euro making its products too expensive for export markets.
“The institutions in Greece don't work the way that's necessary for a market economy,” Fratzscher warned, pointing to corruption, poor tax administration, complex regulations and poor defences against monopolies.