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Will Greece Leave the Euro Zone?

Will Greece Leave the Euro Zone?

On Monday, Greek Prime Minister George Papandreou announced that he would call a referendum on the Greek financial crisis. †The week before, European leaders meetings in Brussels had agreed on a deal to restructure Greece’s $500 billion in public debt, on the condition that the Greek government impose even more stringent austerity measures than it already has. Greeks responded with civil disobedience, and anger, and Papandreou held a seven-hour cabinet meeting until 3:00 am Wednesday morning. While the Greek cabinet — where Papendreou has the slimmest of majorities — agreed to Friday’s referendum, one MP has quit the ruling Pasok Socialist party and the†center-right opposition, led by Antonis Samaras of the New Democracy Party, has called for early elections. Six leading Socialists have called on Papandreou to resign.

The referendum could bolster, or sink, Papandreou’s political capital. To say the austerity measures have been unpopular in Greece is a gross understatement. Perceiving that the fate — financial and otherwise — of their country is now in the hands of the European Union, Greeks fear they have already lost their sovereignty. They have been asking if membership in the euro zone is worth it, to have German Chancellor Angela Merkel and French President Nicolas Sarkozy “acting as if they were the real government of Greece.”

The EU’s so far “fairly technocratic“†management of financial crises among its members has failed fully to acknowledge the political, and the people, element:

During the two-year financial crisis, the wealthier countries of northern Europe, led by Germany, have insisted that their heavily indebted brethren in the south radically cut spending in return for emergency loans. They have stuck to that prescription even though austerity has undermined growth and increased unemployment in Greece, Spain, Portugal and now Italy, betting that people in those countries will swallow the harsh medicine because their only alternative is to default and possibly leave the euro zone altogether.

Greeks are no longer sure they want to remain in the euro zone and are considering a return to Greece’s old currency, the drachma. Leaving the EU and again using the drachma would make it almost certain that Greece would default on its debt and†that funds would be withdrawn from local banks. The currency would be devalued 50 percent and it would take years to again enter international credit markets. But proponents of the drachma contend that such dire scenarios are “overdone” and that Greece again being in control of its own currency can only benefit the country.

On Wednesday, Merkel and Sarkozy said that the next 8 billion euros of bailout funds will now be withheld from Greece until the beginning of December — the French president said that Greece will not receive a “single cent” unless it sticks to the terms of the deal –while characterizing Friday’s referendum in the Greek parliament as nothing less than a vote about whether Greece wishes to stay in the EU or not. Papandreou, who has said that he believes there is a “wide consensus among the Greek people… and the Greek people will speak soon,”†has been summoned to Cannes ahead of the G20 summit to explain why he called the referendum and thereby further undermined confidence about the bailout plan, not to mention the stability of the euro zone, in the rest of the world. China, with its $3.2 trillion foreign exchange reserves, has been courted to contribute to the EU’s bailout fund, the European Financial Stability Fund (EFSF). But Deputy Finance Minister Zhu Guangyao has said that, until the “situation in Greece is clarified,” it will not consider doing so.

 

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Photo 20 drachmas (1955) by Tilemahos Efthimiadis

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25 comments

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12:43AM PST on Dec 4, 2011

Well, I guess ignorance is a bliss. If you really want to know the true situation in Greece and the Eurozone, please listen to Max Keizer (www.maxkeizer.com) advising the Greeks right from day one NOT to pay the bankers, and to get the hell out of the Eurozone. But, they were bent on staying with the Euro and now it will cost Greece her sovereignty if they continue on this course of destruction. Greece was the sacrificial lamb and Papandreou the Prime Minister who was voted in, in 2009 was the cause of evil. The man is a traitor and some day I hope to see him before a tribunal for what he did to Greece. He and his cronies were in cahoots with the German Chancellor Angela Merkel and they betrayed Greece the same way Efialtis betrayed the 300 Spartans. Greece is not new to betrayal. As a matter of fact Max Keizer advised the Greek people to revolt. Get out in the streets and revolt and take out the politicians that betrayed you, he advised. No one listened. Now it is pay time for wishing to clink to a failing currency. No matter how the world tries to help the Euro, it is only a matter of time before the Euro collapses. When a glass breaks no matter how you try to mend it there will be leakage. Time will tell how this situation will evolve. But, we must all remember the famous quotation. When you dig someone else's grave you fall in it yourself. Watch out Mrs. Merkel. The Germans tried to invade Greece once before militarily and completely failed even though t

9:10PM PST on Nov 7, 2011

No way can Greece leave the EU. It's nearly a trillion US $ equivalent in debt, and only Germany and France can bail it out. Conversely, Northern EU leaders don't want the whole alliance to fracture because it could leave them vulnerable to a resurgent Russia and a booming China. True, Merkel said Greece could be 'cordoned off' and allowed to sink but that is about as unlikely as the cancelled referendum. Europe can't allow Greece and the Mediterranean states to become Aegean shipwrecks.

Both Greeks and Northern Europeans will have to swallow their national pride for a huge dose of austerity, and a modest dose of national security. The question is whether Italy and Spain can be floated as well so the whole structure doesn't collapse. Chinese bond traders, anyone?

5:12AM PDT on Nov 4, 2011

It is the only solution to the EU debt crisis.
Greece goes back tp the Drachma, devaluates, exports increase and eventually can pay back its own debt.
The € is strengthened because its weakest link has gone.

12:56AM PDT on Nov 4, 2011

I believe that America is telling Greece what to do

10:14PM PDT on Nov 3, 2011

Could Greece be the first country to tell the banks F...Y..? To quite the global economy? Holly Transition Towns Batman! This could speed things up!

7:14PM PDT on Nov 3, 2011

The PM has abandoned the idea of holding a referendum.

5:31PM PDT on Nov 3, 2011

Greece should certainly abide by the wishes of the population, albeit the referendum. The Euro currency is incompatible with the social and cultural character of the Greeks. The drachma worked wonderfully for this democratic nation. It is right that the people reject control of their lives by outsider countries that really do not understand or have the best interests of the people at heart.

3:42PM PDT on Nov 3, 2011

Νομίζω ότι τα έθνη της ευρωζώνης πρέπει να διατηρούν το επίπεδο του χρέους τους, έτσι ώστε να κρατήσει χαμηλά ευρώ τους!

I think that Eurozone nations must keep their debt level so low to keep their euro!

3:03PM PDT on Nov 3, 2011

The Euro zone idea was, to those who were not too busy daydreaming or believeing the fairytales spinned by politicians, something bound to failure. Nothing of it has worked except to benefit a few (supposedly there is free movement of citizens, it is not so; the prices are not the same, nor are the wages, countries have had to cut their own production to "import" the same products but at a higher price and lower quality in order to "fill in the quotas".

The saddest thing is that it has taken too long to have the ballon pop. Now everyone is stuck in s*** , some deeper than others. Greece may leave the eurozone, but the harm is already done for them and for everyone else. Unfortunately, no one will be held respnsible for the "unaccomplished promises" they did a couple of decades ago.

2:10PM PDT on Nov 3, 2011

Careful Ken M. when you talk about the "Greeks" bitching - "everybody's cheating"? really? You know absolutely nothing about my country nor of our daily trials and tribulations so I guess for you ignorance is a good thing Ken!

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