Euro falls on rumours Greece is to quit the eurozone

 
The logo of the European currency Euro stands in front of the European Central Bank in Frankfurt Greece has vigorously denied rumours that it is has raised the idea of quitting the euro

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The euro has fallen by more than 1% against the dollar, following a report that Greece had raised the possibility of leaving the single currency.

German magazine Der Spiegel reported that a meeting was taking place on Friday evening about Greece readopting its own currency.

The claim was vigorously denied by Greece and Germany.

However it was later confirmed that ministers from five eurozone countries were meeting in Luxembourg.

The countries - Germany, France, Italy, Spain and Greece - were said to be discussing EU issues, including the financial situation of Portugal, Ireland and Greece.

Greece denounced the Spiegel report about the possible exit of Greece from the Eurozone as "not only completely untrue but also written with incomprehensible flippancy despite repeated denials by the Greek Government as well as other EU Member States".

"Such articles are not only provocative but also highly irresponsible as they undermine Greece's efforts and those of the Eurozone and serve only the interests of speculators.

Despite the denials, at 2230 GMT the euro was worth $1.44.

Denials

After the talks the Eurogroup Chairman Jean-Claude Juncker issued a categorical denial that Greece's euro status was up for debate.

Start Quote

For (Greece) to leave the euro is very complicated. It's not like they can just wake up tomorrow and say we're not in the euro anymore”

End Quote Ron Leven Currency strategist

"We have not been discussing the exit of Greece from the euro area, this is a stupid idea, it is in no way... an avenue we would never take," Reuters reported him as saying.

"We don't want to have the euro area exploding without reason.

"We have ruled out any restructuring of Greek debt," Juncker underlined, saying the talks were about "discussing European problems in relation to G20 and Eurogroup meetings over the coming weeks."

Despite dismissals from officials, the story "does seem to be having a market effect," said Ron Leven, a currency strategist at Morgan Stanley in New York.

But he played down the significance of the report. "For [Greece] to leave the euro is very complicated. It's not like they can just wake up tomorrow and say we're not in the euro anymore."

Bailout

Greece became the 12th country to join the single currency when it ditched its own currency, the drachma, in 2002.

Over the past decade the Greek government borrowed heavily - public spending soared and money flowed out of the government's coffers.

Police secure a street in Athens, 15 December, 2010 Protesters demonstrated in Athens in December 2010 against government austerity measures.

However, the revenues the government generated through tax were not enough to counterbalance this, mainly as a result of widespread income tax evasion.

The result was a bulging budget deficit, more than four times the limit under eurozone rules.

In the end Greece was forced to accept a multi-billion euro bailout, by the EU and the IMF, to finance its huge deficit.

The 110bn-euro ($136bn; £94bn) loan was designed to prevent Greece from defaulting on its massive debt.

But despite a programme of government spending cuts and other reforms, its economy has struggled to keep its head above water.

In recent weeks there has been increased speculation that Athens could default and will need to restructure its debts.

Yields on Greek government 10-year bonds have leapt to over 15%, a sign that investors are becoming increasingly sceptical that they will be repaid.

 

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  • rate this
    -2

    Comment number 88.

    Inevitably there are many systemic problems in the country, but the bottom line is that the Greeks will not tolerate their government leaving the Euro. Simultaneously, the big Eurozone members will not risk having confidence in the common currency shaken up while also having to face bailing out their own banks for billions more than it would cost to restructure Greece's loans.

  • rate this
    +3

    Comment number 86.

    It moght actually be more practical to form a super euro zone of countries which met the criteria. That would to-day probably be 3-5 fairly similar economies which might actually make sense. Alternatively one could take up Thatcher's suggestion of all countires using their own currency with an "alternate" euro also available for trade purposes.

  • rate this
    +2

    Comment number 71.

    I'm not sure where the idea of spending what you don't have came from; however, it will inevitably lead to disaster whether in ones own home or nationally! I also see no reason why other countries should be expected to pay for someone else's bad habits.
    Time for all these nations to get their fiscal house in order no matter the 'pain' involved.

  • rate this
    +3

    Comment number 21.

    It has always been inevitable that some member states would leave Eurozone eventually. When the Euro was created nobody foresaw the crisis now.

    However the EU still offers strenght for us all as a trading club. This does not have to include currency, tax or legislation generally.

  • rate this
    0

    Comment number 3.

    Surely the Euro must get stronger against the Dollar?
    If Greece is going to drop out, the Euro will be in a better situation and be stronger without Greece. at least they won't be any worries about Greece defaulting as they won't be in the Euro

 
 

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