Thursday

24th Sep 2020

Greek central bank chief warns of euro exit

  • Greece's central bank says the austerity course must be maintained or the country risks exiting the euro (Photo: YoungJ523)

Greece's central bank governor said his country would have to leave the eurozone if politicians do not stick to the austerity programme after elections due to take place on 6 May.

"What is at stake is the choice between an orderly, albeit painstaking, effort to reconstruct the economy within the euro area, with the support of our partners, or a disorderly economic and social regression, taking the country several decades back, and eventually driving it out of the euro area and the European Union," George Provopoulos said in a speech on Tuesday (24 April).

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Greece has signed up to a second, €130 billion loan paid mainly by other eurozone countries to reduce the country's debt and recapitalise its banks, along with a major debt restructuring agreed with private lenders.

But in return, an already austerity-weary Greek society has to stomach further spending cuts for at least another three years.

Meanwhile the economic outlook for 2012 is worse than expected. Instead of a 4.5 percent of GDP recession, the central bank on Tuesday estimated that the economy would shrink by five percent this year, Greece's fifth year of recession.

For a long time a taboo topic, Greece's euro-exit was first floated by French and German leaders last year when the former Prime Minister said he would organise a referendum on the austerity measures linked to a second bail-out.

EU officials, along with Nicolas Sarkozy and Angela Merkel, have since repeatedly said that Greece will stay in the euro and that the agreed bail-out proves eurozone countries do not want Athens to leave.

But public support for more cuts in pensions, wages, healthcare and education has vanished, with anti-EU fringe parties on the left and right of the political spectrum set to score well in the 6 May general elections.

According to recent polls, two-thirds of the Greeks say the programme must be renegotiated by the next government. Last year, a majority thought the measures were unfair but largely unavoidable no matter who was in power.

European Investment Bank

Meanwhile, the Luxembourg-based European Investment Bank has started including a new legal clause in its contracts with Greek companies allowing them to repay loans in a currency other than the euro.

An EIB spokeswoman on Monday said the move does not mean the bank believes Greece will leave the eurozone.

“The fact that a company will repay in a different currency does not mean that the currency of the country will change,” Helen Kavvadia told Associated Press.

EU commission tries to win Greek sympathy

With less than a month to elections in which Greek radical parties are set to score well, the EU commission is keen to show it has more to offer than austerity.

EU countries stuck on rule of law-budget link

Divisions among EU governments remain between those who want to suspend EU funds if rule of law is not respected, and those who want to narrow down conditionality.

MEPs warn of 'significant gaps' in budget talks

The budget committee chair said the European Parliament expects tangible improvements to the package in its talks with member states - while the German minister argued that the EU leaders' deal was difficult enough.

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