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13th Apr 2024

Greece warns of euro-exit as EU economies drift apart

  • Germany's unemployment rate hit record lows, while Spain's is going through the ceiling (Photo: YoungJ523)

Greece may have to exit the eurozone if it fails to secure its second EU-IMF bail-out its government has warned, amid new protests against spending cuts.

"The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro," government spokesman Pantelis Kapsis told Skai TV on Tuesday (3 January).

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The day before, doctors and pharmacists went on strike in reaction to planned spending cuts, with hospitals taking emergency cases only until Thursday.

The latest €130 billion bail-out for Greece was agreed in principle by EU leaders in October, provided Athens cuts deeper into public spending, privatises some services and state-owned companies and boosts revenues by clamping down on tax evasion.

The scenario of a Greek euro exit - previously a political taboo - was first raised by German and French leaders in November after the former Greek premier said he would call a referendum on the bail-out deal.

The Greek parliament has already adopted a series of austerity measures, including tax rises and spending cuts. But an evaluation by the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) due later this month is likely to demand more.

The government spokesman on Tuesday wondered how much more Greece can cut.

"We will see what the shortfall is and it is very likely that measures will be required," Kapsis said. "I also don't believe it is easy to impose new taxes, but what does cutting spending mean? To close down the public sector? There is no easy solution."

In his New Year's Eve address, Prime Minister Lucas Papademos warned Greek citizens of more tough times ahead.

"A very difficult year lies ahead of us. We must continue our efforts with decisiveness, to stay in the euro, to make sure we do not waste the sacrifices and do not turn the crisis into an uncontrolled and disastrous bankruptcy," he said.

Greece's problems are being aggravated by an overall slowdown in Europe's economy.

Manufacturing and employment went down in the last three months. Only Germany has registered strong economic data, with record low unemployment figures (6.8 percent), while crisis-hit Spain now has almost five million jobless people - some 21.5 percent of its workforce.

Madrid also had to announce a series of fresh austerity measures after it conceded that its budget deficit for 2011 will be higher than estimated, at 8 percent of GDP.

Spain, together with Italy, saw their borrowing costs rise to 'bail-out territory' last fall before extraordinary intervention by the ECB lowered them. But yields on Italian bonds are again closing in on the seven-percent threshold while Spanish yields climbed to 5.26 percent after the government announced its new deficit figures.

On top of the ECB intervention, the European Financial Stability Facility - the eurozone's ad-hoc bail-out fund - is planning to raise €3 billion by selling three-year bonds for the first time.

The move could be carried out as soon as this week, Bloomberg reports.

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