Expectations rise on Greek eurozone exit
Eurozone central bankers have talked publicly lately of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will be forced to renege on the terms of its international bailout.
The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers. They mark a significant shift at the ECB, which has previously argued that European treaties do not allow for an exit and that a break-up would cause incalculable economic damage.
Patrick Honohan, Irish central bank governor, told a conference in Estonia at the weekend: “Things can happen that are not imagined in the treaties. ... Technically, it [a Greek exit] can be managed. … It is not necessarily fatal, but it is not attractive.”
Along with policymakers across the eurozone, the ECB has stepped up the pressure on Greece to stick to its internationally agreed bailout programme – and warned that reneging would lead to outside financial support being cut off. Jens Weidmann, Bundesbank president, who also sits on the ECB council, warned in a German media interview over the weekend that the consequences for Greece [of a eurozone exit] would be more serious than for the rest of the eurozone.
In contrast to this weekend’s comments, last December Mario Draghi, ECB president, told that a eurozone exit would result in “a substantial breach of the existing treaty” with incalculable consequences for the bloc.
Greece on Sunday night appeared to be heading for fresh national elections after last-ditch coalition talks chaired by the country’s president ended in mutual mud-slinging by conservative, socialist and leftwing leaders. Antonis Samaras, leader of the centre-right New Democracy party, said the radical left coalition Syriza had blocked efforts to break the deadlock, even after a letter from premier Lucas Papademos was circulated at the meeting outlining Greece’s deteriorating fiscal position.
Analysts gave conflicting opinions about what would happen next. One conservative observer said it was still possible that some lawmakers from Independent Greeks, a rightwing splinter group, could return to New Democracy and give the two pro-euro parties a slim overall majority. But a senior socialist said that Evangelos Venizelos, the Pasok leader, would refuse to serve in a government that did not include either Syriza or Democratic Left, a small leftwing party that used to be part of Syriza’s left coalition. “We are clearly moving towards another election,” he said.
A Greek exit is widely seen as a death kneel for the euro, as Portugal, Ireland, Belgium, Italy and Spain find themselves in similar circumstances as Greece today.
Eurozone central bankers have talked publicly lately of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will be forced to renege on the terms of its international bailout.
The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers. They mark a significant shift at the ECB, which has previously argued that European treaties do not allow for an exit and that a break-up would cause incalculable economic damage.
Patrick Honohan, Irish central bank governor, told a conference in Estonia at the weekend: “Things can happen that are not imagined in the treaties. ... Technically, it [a Greek exit] can be managed. … It is not necessarily fatal, but it is not attractive.”
Along with policymakers across the eurozone, the ECB has stepped up the pressure on Greece to stick to its internationally agreed bailout programme – and warned that reneging would lead to outside financial support being cut off. Jens Weidmann, Bundesbank president, who also sits on the ECB council, warned in a German media interview over the weekend that the consequences for Greece [of a eurozone exit] would be more serious than for the rest of the eurozone.
In contrast to this weekend’s comments, last December Mario Draghi, ECB president, told that a eurozone exit would result in “a substantial breach of the existing treaty” with incalculable consequences for the bloc.
Greece on Sunday night appeared to be heading for fresh national elections after last-ditch coalition talks chaired by the country’s president ended in mutual mud-slinging by conservative, socialist and leftwing leaders. Antonis Samaras, leader of the centre-right New Democracy party, said the radical left coalition Syriza had blocked efforts to break the deadlock, even after a letter from premier Lucas Papademos was circulated at the meeting outlining Greece’s deteriorating fiscal position.
KKE, Syriza, Democratic Left and Golden Dawn reject bailout and austerity conditions
Analysts gave conflicting opinions about what would happen next. One conservative observer said it was still possible that some lawmakers from Independent Greeks, a rightwing splinter group, could return to New Democracy and give the two pro-euro parties a slim overall majority. But a senior socialist said that Evangelos Venizelos, the Pasok leader, would refuse to serve in a government that did not include either Syriza or Democratic Left, a small leftwing party that used to be part of Syriza’s left coalition. “We are clearly moving towards another election,” he said.
A Greek exit is widely seen as a death kneel for the euro, as Portugal, Ireland, Belgium, Italy and Spain find themselves in similar circumstances as Greece today.
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