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14th Apr 2024

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.

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Opinion

This 'deregulation' lobbying now threatens EU economy

Next week's EU summit (17-18 April) will discuss the strategic agenda for the next five years. The current "competitiveness agenda" is to a large extent driven by a big lobbying campaign — so far, not well covered by the media.

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