Greek Commissioner warns about leaving euro

AP News
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Posted: May 25, 2011 2:11 PM
Greek Commissioner warns about leaving euro

A Greek EU Commissioner warned that the country's participation in the euro was under threat, though the prime minister insisted Wednesday his government would see through new austerity measures and keep Greece in the joint currency.

The EU's Fisheries Commissioner, Greece's Maria Damanaki, warned that "The scenario of removing Greece from the euro is now on the table."

"I am obliged to speak openly. We have a historical responsibility to see the dilemma clearly: either we agree with our borrowers on a program of tough sacrifices with results ... or we return to the drachma," she said in a statement on her personal website.

Damanaki does not represent the Greek government, but she is part of the ruling Socialist party.

Greece's debt load is so big that many investors don't believe it will be able to avoid reneging on its repayment terms in some way. In the longer term, if Greece's problems prove to be unmanageable, some argue it could have to leave the currency bloc.

Greek state NET broadcaster quoted Amadeu Altafaj Tardio, spokesman for the EU's Monetary Affairs Commissioner Olli Rehn, as saying there has never been any discussion within the eurozone of Greece exiting the euro.

Prime Minister George Papandreou insisted he was determined to keep Greece in the eurozone and renewed his commitment to finding cross-party agreement for a new set of austerity measures, which he has so far failed to secure despite European Union pressure.

"We have achieved very difficult targets in a critical time, and this is what we must continue. We are entering a new phase of the program with determination," Papandreou told reporters earlier in the day after briefing the country's president, Karolos Papoulias. "On the government's side, we are absolutely determined ... to remain participants in the core of the European Union."

Government spokesman Giorgos Petalotis underlined the point, saying the government's position was clear and that "we cannot think of the future of our country outside the eurozone."

International debt inspectors returned to Athens to continue a crucial review of Greece's progress in meeting the terms of its euro110 billion ($155 billion) bailout package from other European Union countries and the International Monetary Fund.

They will determine whether the country receives the next euro12 billion installment of rescue loans in June _ and could indicate whether Greece will need extra help beyond the current rescue loans, such as a second bailout.

The austerity measures, including a new midterm package of more cuts announced this week and due to run to 2015, have sparked frequent protests, mostly by trade unions. But thousands on Wednesday heeded a call sent out on a social networking site for "outraged" citizens to gather for peaceful protest in the center of Athens and of the second largest city of Thessaloniki.

More than 15,000 mostly young people gathered in central Athens, and another 5,000 in Thessaloniki. "Thieves, thieves" a few hundred shouted at Parliament in the capital. A line of riot police stood watch, but the atmosphere was mainly peaceful.

Papandreou failed to win overall support for his midterm austerity package during meetings Tuesday with opposition leaders. EU officials have argued Greece needs opposition parties to back the reforms to ensure they can be implemented.

"As I have stressed before, always the aim for me in these crucial times is for national cohesion," Papandreou said. "And I am totally open, as I have stressed to the political leaders, to every new idea, proposal."

There are fears that even with the current bailout, the country will not be able to pull itself out of the crisis. Some argue that with a debt of over euro342 billion last year, along with a budget deficit of 10.5 percent of gross domestic product, Greece will eventually have to restructure _ pay creditors later or less than the full amount owed.

But the European Central Bank strongly opposes the idea.

"To think that there is an easy way out, in that a country's debts are largely or fully relieved, is an illusion," ECB chief economist Juergen Stark said in Berlin. "The necessary structural adjustments must be made."

Stark pointed to the dire effects restructuring would have on Greek banks' capital and to a likely need for subsequent recapitalization _ which "would not be very cheap."

"We should think one connection further when we use this miracle word debt relief, or debt restructuring _ be it soft or hard," he told a conference organized by a group linked to German Chancellor Angela Merkel's party.

The new plan includes more than euro6 billion worth of measures this year, including tax increases and an immediate start to previously announced privatizations, aiming to narrow the budget deficit from 10.5 percent of gross domestic product last year to 7.5 percent by the end of 2011.

Unions have already begun protests over the privatizations, with employees of Hellenic Postbank, one of the enterprises up for privatization, occupying the company headquarters in central Athens. Employees at the gambling monopoly OPAP held a 24-hour strike against plans to sell the state's stake in the company.

A communist party-backed union has called for a demonstration on Saturday.

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Derek Gatopoulos and Nicholas Paphitis in Athens and Geir Moulson in Berlin contributed.