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Will Greece Exit The Eurozone?

By Pension Pulse on 09/05/2010 – 7:45 pm PDTOne Comment

Helena Smith of the Guardian reports, Exit from eurozone is Greece’s worst option, says Jean-Claude Trichet:

Greece’s exit from the eurozone would be the “worst possible option”, Europe’s central bank chief said at the weekend amid concerns over the debt-stricken country’s ability to pull itself out of crisis.

Ahead of a crucial week for George Papandreou, the prime minister, with threats of renewed civil unrest over government austerity policies in the run-up to the leader’s keynote annual economic speech, the ECB president sought to squash speculation that Athens’ only solution was to revert to the drachma.

“We created the euro to achieve the single market for the prosperity and stability of Europe,” Jean-Claude Trichet said at a meeting of prominent political and business leaders on the shores of Italy’s Lake Como. “The national governments have to take care of their own national competitiveness within the euro area.”

The Greek administration has won widespread praise for implementing an unprecedented belt-tightening programme of tax hikes, wage and pension cuts in return for a three-year, €110bn (£92bn) package of emergency aid from the IMF and eurozone nations.

Without the rescue loans, the EU member state would have defaulted on its sovereign debt in May.

At a conference marking his socialist Pasok party’s foundation, Papandreou insisted that Greeks, who are experiencing their first recession in 16 years, were on course to not only exiting the crisis but emerging much stronger for it.

But his government has also been criticised for failing to move fast enough to enact reforms spurring growth and development, seen as vital to kick-start the economy. Despite the measures, revenue intake has also remained off-target.

With borrowing costs for the nation back at the record levels that preceded the bailout – and public anger over austerity measures poised, with summer’s end, to spill onto the streets – leading economists are again questioning whether Greece can weather the storm.

Galloping unemployment has helped fuel fears that the country is heading for an unparalleled winter of discontent.

An MRB poll revealed that an overwhelming 81.7% of the population believe the ruling socialists will soon be forced to resort to yet tougher measures, while nearly 46% think it likely that Greece would become bankrupt.

Highlighting the scepticism surrounding Greek efforts to solve the crisis, the head of Germany’s prestigious thinktank IFO Institute, Hans-Werner Sinn, predicted that further austerity would push the nation to the brink of “civil war”.

The “least bad” option, he said, would be for Athens to drop the common currency.

“The policy of forced ‘internal devaluation,’ deflation and depression could risk driving Greece to the edge of civil war,” Sinn told the gathering of political and business leaders in Italy. “It is impossible to cut wages by 30% without major riots … Greece would have been bankrupt without the rescue. All the alternatives are terrible, but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks.”

Indeed, Mr. Sinn’s dire forecasts have garnered much attention. Ambrose Evans-Pritchard of the Telegraph reports, EU austerity policies risk civil war in Greece, warns top German economist Dr Sinn:

“This tragedy does not have a solution,” said Hans-Werner Sinn, head of the prestigious IFO Institute in Munich.

“The policy of forced ‘internal devaluation’, deflation, and depression could risk driving Greece to the edge of a civil war. It is impossible to cut wages and prices by 30pc without major riots,” he said, speaking at the elite European House Ambrosetti forum at Lake Como

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Tags: , , Exit, george papandreou, , rescue

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  5. EU Official Calls for More Spending Cuts From Greece

One Comment »

  • Dissident says:

    Let’s not forget they predicted 4% contraction for this year because of the austerity measures. Let’s see what happens. If that’s the case, we can conjoin with Papandreou in that Greece can “emerge stronger after this crisis”.

    But in Latvia, when they predicted 4% contraction, economy contracted 17.8%. It was a disaster.

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