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Inside Story
A Greek tragedy and a European crisis?
As Greece struggles to form a stable government, we ask if quitting the eurozone is now only a question of time.
Last Modified: 16 May 2012 09:47

As Greece entered a second week without a government, central bankers joined politicians and economists in openly warning about the possible breakup of the eurozone.

"The scenario now is Greece going to new elections again probably as early as mid-June and it is by no means certain that these new elections will provide for a stable majority so the option of leaving the eurozone is on the table … it's a concrete possibility."

- Vincenzo Scarpetta, a researcher at Open Europe

Karolos Papoulias, the Greek president, has been talking to politicians across the political spectrum, trying to get them to agree to join a new coalition government. He met party leaders but they failed to reach an agreement.

A caretaker government will now take Greece into new elections.

And so the Greek political tragedy plays on with potentially harsh consequences for Europe's economies. In Brussels, there are already talks about Greece leaving the eurozone.

Greece has been bailed out twice so far.

Last May, as fears over a default grew, eurozone countries and the International Monetary Fund (IMF) agreed on a $145bn bailout loan for Greece. It was conditional on the implementation of harsh austerity measures but many of those have not been implemented, and the financial situation has not changed very much.

"The mistake is to see this as a crisis of individual countries … one solution which would be for a coordinated [European] action in a fiscal sense and also for the European Central Bank to be much more aggressive in stopping the spread of contagion and the pressure on the sovereigns."

- David Lizoain, an economist

Then in October, eurozone leaders agreed to a second bailout amounting to $167bn. It was again conditional, not only on another harsh austerity package but also on getting all private creditors to restructure their Greek debt.

Inside Story asks: If Greece refuses to pay back its debts, will the IMF withdraw its financial support? And is it now a question of when not if Greece will leave the eurozone? Will it be forced to quit or will there be a managed departure?

Joining presenter Stephen Cole to discuss these issues are guests: Vincenzo Scarpetta, a researcher at Open Europe, an independent think tank calling for EU reform; George Kratsas, a teaching assistant at University College London; and David Lizoain, an economist and a former adviser to the former president of Cataluna in Spain.

"There are large segments of society that call for a more lenient rescue package .... It was the failed policies of the first package that led us to the current situation ... it did not lower the borrowing cost, it deepened the recession, it furthered instability both in Greece and at the European level."

George Kratsas, a teaching assistant at University College London


OTHER COUNTRIES ON BAILOUT:

  • In May 2011, Portugal became the third eurozone country to receive an EU-IMF bailout totalling $100bn
  • The government responded by adopting a range of austerity measures, including a five per cent pay cut for top earners in the public sector, a one percentage point increase in value added tax, and income tax rises for high-earners
  • In 2010, the IMF granted Ireland a bailout worth $109bn. Last year it added another $5bn
  • Government spending was cut with all public servants supposed to take a five per cent pay cut
  • As Italy's debts rose to almost $2.5 trillion, the Berlusconi government last July adopted harsh austerity measures which included increases in healthcare fees and cuts to family tax benefits. Mario Monti, the next Italian prime minister, then added more austerity measures including higher taxes for the wealthy
Source:
Al Jazeera
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