Greek Political Turmoil Raises Concerns of Eurozone Exit

Posted May 9th, 2012 at 6:50 pm (UTC-5)
Leave a comment

The political turmoil in Greece over the failure so far to create a new government is raising new concerns that Greece could become the first to exit the 17-nation euro currency bloc.

Greece avoided leaving the eurozone twice in the last two years as it negotiated billions of dollars in bailouts from the European Union and International Monetary Fund. In exchange, Greece was forced to agree to impose severe austerity measures that brought widespread street protests.

Voters in Sunday's parliamentary elections overwhelmingly rejected candidates supporting the unpopular cuts in social spending. Anti-austerity political leaders say the country is no longer obligated to support cuts demanded as part of the loans.

Financial analysts say the political deadlock heightens the possibility the country could exit the eurozone and return to the use of its old currency, the drachma. Analysts say a Greek exit from the eurozone could spread far beyond Greece and lead to worldwide economic uncertainty.

Despite the Greek political turmoil, the EU decided Wednesday to grant a $6.7 billion loan payment with $5.5 billion to be paid out this week and the rest in the near future.

In another economically troubled country, Spain's government announced Wednesday it is taking over Bankia, the country's fourth-largest bank.

Bankia is holding tens of billions of dollars in bad loans to developers and landlords. Bankia is the largest financial institution to be taken over by the Spanish government since the 2008 recession.