5th Jul 2022

Greece: Italy and Portugal next if we are forced out of eurozone

  • Italy and Portugal could topple out of the eurozone if Greece is forced out, says Athens (Photo: thierry ehrmann)

Italy and Portugal could be next to go if Greece is forced to leave the eurozone, Greek finance minister Yanis Varoufakis said on Sunday (9 February) drawing a swift rebuke from Italy.

The newly elected left-wing government of Alexis Tsipras faces a critical week as it seeks to re-write its financial rescue programme with its EU creditors, and is due to present its economic programme to finance ministers in Brussels this Wednesday.

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However, in an interview with Italian state television network RAI, his finance minister poured petrol onto an already incendiary debate by stating that other countries were effectively bankrupt.

"The euro is fragile, it's like building a castle of cards, if you take out the Greek card the others will collapse,” said Varoufakis.

"I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous," he said. "Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?"

The remarks drew a sharp rebuke from Matteo Renzi’s government in Rome. Italy’s debt burden, at 132 percent of GDP, is second in size only to Greece’s 175 percent, foliowed by Portugal, whose debt pile is 129 percent of GDP.

Italy’s finance minister Pier Carlo Padoan retorted that Varoufakis’s remarks were "out of place”, adding that Italy’s debt profile was “solid and sustainable”.

Together with Tsipras, Varoufakis toured European capitals last week in a bid to drum up allies for their plans to renegotiate Greece’s bailout agreement.

Although no EU government has indicated its willingness to write-off a further tranche of Greek debt, a number of ministers have suggested that they would support easing the terms of its bailout conditions, including lowering the interest rates on its loans and extending repayment deadlines.

In a speech to the Greek parliament on Sunday (8 February), Tsipras set out his government’s policy platform to unpick five years of austerity measures it has been required to take under the terms of its EU/IMF bailout, including an increase to the minimum wage, restoration of the income tax-free threshold to €12,000 and the cancellation of any further privatisation of state-owned assets.

Varoufakis will face the 18 other eurozone finance ministers at an emergency meeting on Wednesday (11 February). Thomas Wieser, the Austrian official who prepares the monthly meetings of the 19 Eurogroup ministers will be in Athens on Monday.

Tsipras’ government is due to receive a €7.2 billion loan from its EU/IMF deal this month but says it wants a "bridge agreement" with its creditors until it can negotiate a new agreement.

Failure to agree an alternative arrangement could lead to Greece going bankrupt within weeks.

For his part, former US Federal Reserve chairman Alan Greenspan told the BBC on Sunday that a Greek exit from the currency bloc was “just a matter of time,” adding that “I don’t see that it helps them to be in the euro and I certainly don’t see that it helps the rest of the eurozone.”

ECB ratchets up pressure on Greece

In a surprise move, the ECB on Wednesday said it will no longer accept Greek bonds as collateral for loans, giving Athens one week to agree with creditors or face cashflow problems.

France, US support Greece in debt battle

Paris and Washington have expressed support for Athens’ attempts to renegotiate the terms of its bailout, as Germany comes under increasing pressure to reconsider its approach to austerity.

Greece up for 'clash' with eurozone ministers

Greece is not excluding a clash with eurozone finance ministers on Wednesday over its plan to replace the outgoing bailout with a 'bridging programme' until September.


The euro — who's next?

Bulgaria's target date for joining the eurozone, 1 January 2024, seems elusive. The collapse of Kiril Petkov's government, likely fresh elections, with populists trying to score cheap points against the 'diktat of the eurocrats', might well delay accession.

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