Greece sinks deep, Fitch speaks of euro walkout

ATHENS - Agence France-Presse

People walk in front of the Greek parliament in Athens on May 8. The country plunged into deep uncertainty after last weekend’s election. AFP photo

Athens raised the prospects yesterday of renegotiating a hard-earned rescue package after an election in which voters roundly rejected austerity measures, raising fresh doubts over Greece’s eurozone membership.

The uncertainty pushed markets and the euro down, as fears grow again over Greece leaving the eurozone before the end of the year. Questions also surfaced if international lenders would go ahead with the promised loans to save the country from default if Athens is not prepared to deliver on its promises.

Left-wing Syriza chief Alexis Tsipras, who has told lenders that the country would renege on its austerity commitments, had one more day late yesterday to form a coalition.

The anti-austerity rhetoric is also throwing doubts on whether lenders will release desperately-needed loans due at the end of this week.

“There are questions on securing” the latest tranche of rescue loans, said Gikas Hardouvelis, economic advisor of outgoing Prime Minister Lucas Papademos on Skai Radio.

“Why would they give us money?” if Greece deviated from its commitments, Hardouvelis noted.
According to daily Kathimerini, the European Commission has confirmed that the 5.2 billion euro tranche would be approved, though news website To Vima speculated that the EU may decide to hold back on the payment to pressure Greece during its power transition.

Greece is due to receive another 98 billion euros in outstanding loans agreed under the second bailout package, which includes 130 billion euros in fresh loans and another 107 billion euros wiped off by private creditors.

In its fifth year of recession with unemployment at 20 percent, Greece is committed under the previous government to finding by June another 11.5 billion euros in savings over the next two years.

French Foreign Minister Alain Juppe said the situation “is extremely difficult, extremely tense.” “The result of the elections showed a very strong reversal for the two governing parties and an increase of extremes, so it is extremely worrying,” he told Europe 1 radio.

Although his party came second in the polls, Tsipras was given the task of forming a government as the first-ranked conservative New Democracy party failed to get one together.

A new government has to be formed by May 17 or new elections will be called.

Tokyo closed at a three-month low, tracking a poor showing in U.S. markets, with the Dow Jones Industrial Average giving up almost 200 points at one stage until a late buying rally minimized the day’s losses at 76.44 points.

Greece’s cost of borrowing jumped on May 8 as it sought to raise 1.3 billion euros ($1.7 billion) in a sale of six-month treasury bills, with it paying 4.69 percent to investors, up from 4.55 percent at the last equivalent sale on April 10.

“The failure of the Greek election to produce a new government provides some support to our view that Greece could leave the eurozone as soon as the end of this year,” London-based Capital Economics said in a note.

‘Greek exit will not kill’
A Greek exit from the eurozone would not kill the euro because Germany has invested too much in the single currency’s survival, the head of Fitch ratings agency said May 8.

“If the deutschemark were reintroduced, it would appreciate considerably against other currencies. Export industries, which are the motor of the German economy, would suffer,” Fitch boss Paul Taylor explained in an interview with Spiegel Online.

“Germany isn’t going to tolerate that, even if one or more countries leave the eurozone.”

His comments came as Greece upset world markets with a political impasse unleashed by elections that punished mainstream parties for accepting an EU-IMF bailout package that included harsh austerity measures.