Business

Euro falls on rumours Greece is to quit the eurozone

  • 7 May 2011
  • From the section Business
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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

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.

"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.

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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