Euro Zone Assessing Possible Greek Exit

Posted May 23rd, 2012 at 9:05 pm (UTC-5)
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Sixteen nations in the euro currency union have started to assess what financial complications might occur if debt-ridden Greece leaves the monetary compact.

Even as they voice the hope that Greece stays in the eurozone, European leaders have in recent days increasingly discussed the possibility that the Athens government may end its euro alliance and resume use of its one-time currency, the drachma.

Analysts fear that a “Grexit,” as some are calling it in Europe, could disrupt international financial markets and cost European banks billions of dollars in losses if Greece defaults on its debts.

French President Francois Hollande has proposed using euro bonds as a way of averting the crisis, something Germany fiercely opposes. Klaus Larres, professor of international relations at the University of North Carolina, told VOA that bonds would mean sharing the debt among EU members and that Germany as the richest country in the bloc would bear the majority of the burden.

“(Using ) euro bonds really means that other European countries will pool all their resources to bail out Greece, or any other country which may be in danger. However, as the Germans are the richest country in Europe, economically, most of the euro bonds will actually be financed by the German government and the German government does not want to pay for the debts of the other EU countries, particularly those in the south. That actually is an old idea, which (President) Hollande has resurrected. From the German point of view that is understandable, but commentators have pointed out that at some stage, someone will have to make sacrifices for the common good and that country will probably have to be Germany.”

Larres said that Mr. Hollande's proposal to use EU structural funds to finance infrastructure projects in the whole of Europe, including Greece, is a good idea, but it is doubtful that it can prevent the collapse of the Greek economy.

Officials disclosed Wednesday that earlier this week key eurozone financial leaders agreed that each of the 16 other euro nations should prepare contingency plans about what the effect would be in their countries should Greece quit the currency union.

Greece's European neighbors and the International Monetary Fund earlier this year approved billions of dollars in the country's second bailout in two years, contingent on Athens adopting sharp austerity measures that have proved highly unpopular for the Greek populace. After a splintered election earlier this month, Greece's fractious political parties were unable to forge a new coalition government, and a new round of voting is set for mid-June.