Greece to hold new elections- debt crisis threatens the stability of the European Union’s single currency

Greece to hold new elections

The announcement comes as the Greek debt crisis threatens the stability of the European Union’s single currency. The political instability has raised the possibility that Greece will fail to make debt payments as early as next month, potentially forcing the country out of the euro, the currency used by 17 European Union countries.

By Bryan McManus | AFP

Greece tries again on Tuesday to form a government, hoping a technocrat solution to disputes over a tough EU-IMF bailout deal will avoid new polls and keep it in the eurozone as time runs down fast.

Leaders from all bar the far-right parties that won seats in inconclusive May 6 polls will meet at 1100 GMT Tuesday to try and get the country “out of a dead end,” Socialist Pasok party head Evangelos Venizelos said Monday.

Parliament convenes Thursday and if no government is in place, new polls will have to be called, prolonging an agonising crisis by another month to the dismay of Greece’s EU partners and the markets.

President Carolos Papoulias met Venizelos and heads of the conservative New Democracy and radical Democratic Left, proposing Monday in the absence of any other solution a government of “distinguished and non-political figures.”

“I think time is against us,” Papoulias told the meeting, adding: “I am terrified at the idea of the problems facing the country” in the coming days.

A first test comes Tuesday with a government bond sale, which will be closely watched after European financial markets tumbled Monday at the prospect that the eurozone debt crisis could now snag troubled Spain or even Italy.

Another challenge was passed Tuesday when Greece repaid 436 million euros in maturing debt, covering private creditors who had refused to take part in an unprecedented write-down under the EU-IMF bailout, a government source said.

A small number of private creditors rejected the deal and had threatened litigation to get their money back, and the source said the move was intended to avoid any further dispute.

In the May 6 polls, Greek voters roundly rejected the tough austerity measures the outgoing technocrat government of Lucas Papademos agreed to in return for the 240 billion euro ($310 billion) EU-IMF bailout accord.

Picking up on a groundswell of opposition across Europe to governments that put austerity before growth, both left and right gained at the expense of New Democracy and Pasok, which had supported Papademos to get the debt deal done.

In recent months senior EU officials have more openly raised the prospect of Greece leaving the euro, but on Monday the head of eurozone finance ministers group hit back strongly, insisting that Athens was staying put.

“I don’t envisage, not even for one second, Greece leaving,” Jean-Claude Juncker said after the 17 eurozone partners unanimously affirmed their “unshakable desire” to keep Greece in the club.

“This is nonsense, this is propaganda,” he said, adding that the Eurogroup “will do everything possible” to prevent a Greek exit and that “absolutely no one argued in that direction.”

There can be little doubt about the seriousness of the situation both for Greece, if it has to leave the eurozone, and for its partners who might lose billions in its disorderly withdrawal from the bloc.

France would face a bill of 50 billion euros if Greece were forced to quit, outgoing French Finance Minister Francois Baroin warned Tuesday.

“If Greece leaves the euro, if its economic model collapses and there’s no more banking system, that would cost us 50 billion euros net, plus the assets that the banks and insurers have on their books,” he said.

Charles Dallara, who as head of the Institute of International Finance helped negotiate the private creditor write-down, warned that the cost of failure would be too high to bear.

“I believe that the cost to Greece, the cost to Europe and the cost to the entire global economy may still be enough to cause Greek politicians and European politicians to pause before they pull the trigger on a Greek exit.”
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Returning to the Greek Drachma?

With the tide turning against a Greek unity government that will respect prior agreements with the troika, the possibility of a Eurozone breakup is no longer just an academic possibility.  The consensus is gradually accepting a Greek exit as a likely scenario: external funding could dry up, severely constraining the supply of euros and leading to the adoption of a new currency.  According to Nomura, these neo-drachmas would face a 50% to 60% depreciation, while the euro would tank, falling to 1.15 to 1.20 against the U.S. dollar. Nomura provides investment banking and global market capabilities across 34 countries around the world.

Drachma was the currency used in Greece as ancient Greek currency in many city states and in Alexander the Great’s successor states and South-West Asian kingdoms during the Hellenistic era. The Drachma was also used as 3 modern Greek currencies, the first introduced in 1832 and the last replaced by the euro in 2001 with legal introduction of the euro taking place in January 2002.

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Eurozone unemployment rates

Figures accurate as of April 26, 2012

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The idea for a single currency was promoted by Jacques Delors, a former French minister of finance, who held the European Commission presidency from 1985 to 1995.

The euro, which created the world’s largest trading power, was designed to link together the European nations for trade and political purposes. It was born amid political and economic upheaval as Germany headed towards reunification — with the collapse of the Berlin Wall in 1989 — and communism disintegrated in Eastern Europe. The European Union was put in place after World War II, but as the economic winds shifted the drive to create a single economic and political bloc intensified.

The Treaty on European Union, known as the Treaty of Maastricht, was signed in the Dutch city of Maastricht on February 7, 1992, before entering into force in 1993. It created the structure for a single currency, later named the euro, to be born. The currency’s symbol was inspired by the Greek letter epsilon, with the notes and coins available by 2001. They were issued by the European Central Bank, which was based in Frankfurt to placate Germany’s loss of its beloved Deutschmark.

Of the 27 countries in the European Union, 17 nations — comprising almost 332 million people — use the euro as their currency. The eurozone’s biggest economy is Germany, followed by France.

But now the European dream — which has the euro at its center — has been hobbled. Eurozone members, led by Germany, are being forced to bail out the weaker economies in a financial crisis which is threatening the entire existence of the bloc.  – Irene Chapple /CNN

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Greece

Population:

10,767,827 (July 2012 est.) or just under the population of Ohio’s 11,544,951 and just above Michigan’s 9,876,187, Georgia’s 9,815,210 and North Carolina’s 9,656,401 in the United States or just under South Africa’s Gauteng province with its 11,328,203, home to the city of Johannesburg and Tshwane/Pretoria. Greece in population is smaller than metropolitan Greater London’s 13,709,000.

Size:

The country of Greece covers a total area of 131,957 sq km/50,948 sq mi is slightly smaller than the U.S. state of Alabama 135,765 sq km/52,419 sq mi in land area.

The border countries of Greece are: Albania, Bulgaria, Turkey and Macedonia

Athens  is the capital and largest city of Greece with over 4 million in the greater metropolitan area.

Natural resources:   
lignite, petroleum, iron ore, bauxite, lead, zinc, nickel, magnesite, marble, salt, hydropower potential

Aegean Motorway