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Greek Exit From Euro: Standard and Poor’s Again Sets Cat Among Pigeons

Translated Thursday 7 June 2012, by Gene Zbikowski and reviewed by Derek Hanson

In a report published on June 4, the rating agency states that Greece is very likely to exit the euro. This comes a few days before new legislative elections, and the EU countries are fretting about the consequences of the vote on the austerity that they have forced upon Greece.

The announcement came on the evening of June 4. The rating agency Standard and Poor’s (S&P) published a report indicating that Greece has “at least a one-in-three chance” of exiting the euro zone. S&P’s conclusions are notably based on the tense political situation in Greece, and calculate that there’s “a possibility” that the upcoming legislative elections will “lead to the formation of a government that is fundamentally opposed to the adoption of the conditions of the program” of financial reform demanded in exchange for EU and IMF financial assistance.

But the agency is not alone in these fears. Eleven Greek economists announced, in an op-ed article published on June 4 by the free-market-capitalism newspaper Kathimerini that the hypothesis of a Greek exit from the euro zone is “quite real.” This would be yet another humiliation for Greece, which is already subject to a lot of pressure from its European neighbors. Indeed, a fortnight before the legislative elections, Greece sees the economic and political tensions in the euro zone crystallizing around the election results. Everyone fears a renegotiation of the conditions of the austerity plan that has been imposed upon Greece, coupled with a possible exit from the euro.

And yet most Greeks, like the left-wing Syriza party, do not want to abandon the single European currency. Party leader Alexis Tsipras has personally reaffirmed his desire to maintain the euro. If Syriza proves to be the victor on the evening of the June 17 elections, and if the new government decides to go back on the conditions of the austerity pact that has been imposed on the country, without however reverting to the drachma, no European Union institution will be able to force Greece out of the euro zone.

A tight second round of elections

On May 6, two parties came out on top in the first Greek legislative elections: the conservatives of New Democracy, who favor the plan for financial aid to Greece, and the radical leftists of Syriza, who hope to cancel the memorandum that sets the conditions of that plan. Neither of the two having obtained a majority, and finding it impossible to form a coalition government, the country has consequently been forced to hold new legislative elections. But according to two contradictory opinion polls published on June 4, the outcome promises to be close. Whereas Syriza, the party of Alexis Tsipras, is predicted as winning almost 30% of the the vote by one poll, another poll done by the GPO institute for the Méga television network predicts, on the contrary, a right-wing victory and gives New Democracy 23.4% of the vote as against 22.1% for Syriza.

The finance ministers of the G8 countries (Canada, France, Germany, Italy, Japan, Russia, the UK and the US) have scheduled a teleconference for June 5 in order to discuss the question of the sovereign debt crisis in the euro zone. The only consolation in the gloomy European economic picture is that S&P points out that it does not think “for a moment that Greek withdrawal would automatically have a permanent negative impact on the perspective of the other peripheral countries remaining members of the euro zone.”

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