Thu, May 24, 2012 - Page 10 News List

Greek euro exit may be ‘unavoidable’

DANGER LOOMS:If a radical leftist wins the Greek election on June 17, as expected, the country is sure to leave the single currency, German politicians are predicting

Reuters and AFP, Berlin and Athens

Greece’s exit from the euro will be “unavoidable” if anti-austerity radicals win a June 17 election and halt painful economic reforms, a leading German conservative was quoted yesterday as saying.

Alexander Dobrindt, deputy leader of the Christian Social Union (CSU), one of three parties in German Chancellor Angela Merkel’s center-right coalition, has said in the past that Greece might be better off outside the euro, but his latest comments underscore Berlin’s growing exasperation with Greek politicians.

“On election day the hour strikes for the Greek euro. If the communists or other radicals win the election, Greece’s exit from the eurozone will be unavoidable,” Dobrindt told the top-selling Bild daily.

“Europe cannot and should not acquiesce if the Greek radical leftists make good on their declaration that they will unilaterally halt the repayment of aid loans and break off reforms,” he said.

The tough spending cuts, tax hikes and other reforms agreed with international lenders in return for 130 billion euros (US$164.2 billion) worth of loans are not negotiable, Dobrindt said.

Other German politicians, including Merkel and German Minister of Finance Wolfgang Schaeuble, have also urged Greece to stick to its austerity program following big gains by anti-bailout parties in a previous inconclusive election on May 6.

However, they have stopped short of publicly warning of a Greek exit from the single currency in the event of a victory by anti-bailout parties.

Plans for a Greek euro exit “cannot be excluded,” former Greek prime minister Lucas Papademos said in an interview, warning that such a move could even affect countries outside the eurozone.

“Although such a scenario is unlikely to materialize and it is not desirable either for Greece or for other countries, it cannot be excluded that preparations are being made to contain the potential consequences of a Greek euro exit,” Papademos told the Wall Street Journal.

A Greek exit would have “catastrophic” economic consequences, the former European Central Bank deputy chief said, speaking for the first time since handing over to a caretaker administration last week.

Papademos cited estimates that the overall cost of a Greek exit could range from 500 billion euros to 1 trillion euros including the impact on market valuations, cross-border contagion effects and damage to the real economy.

“Some calculations I have seen suggest that inflation could accelerate to 30 percent or even to 50 percent, depending on the impact of such developments on inflation expectations and on the strength of the second-round effects of price increases on wages,” he said.

Greece is heading for a general election on June 17, its second after an inconclusive ballot on May 6 that witnessed an anti-austerity backlash by voters.

The radical leftist SYRIZA party, which wants to tear up Greece’s unpopular EU-IMF bailout deal, came second on May 6 and is expected to win the next polls.

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