BERLIN (dpa) – The risk of Greece exiting the euro once again took centrestage in European economic life on Monday, threatening the European Central Bank’s plans to spur eurozone growth while helping to boost opposition to the region’s swingeing economic reforms.
Renewed concerns about Greece being forced to quit the 19-member currency bloc ramped up the pressure on the euro on Monday after European Central Bank chief Mario Draghi signaled on Friday that the ECB was stepping up its plans for new far-reaching stimulus measures.
Financial markets had already entered the new year concerned that Greece’s snap election this month could result in a win for the far-left anti-austerity SYRIZA party, thereby triggering a push by Athens to water down its international bailout conditions.
But a weekend media report that Chancellor Angela Merkel had abandoned her previous position and now believed that any fallout from a so-called Grexit could be contained helped to spark a new round of speculation on Monday about Greece’s future euro membership.
“A Greek exit from the currency union has become more likely,” said Commerzbank chief economist Joerg Kraemer. “But a government led by the radical left SYRIZA is by no means certain.”
Despite Merkel’s spokesman denying the report that Berlin would accept a Greek exit, renewed concerns about Greece sent the euro down to nine-year low against the dollar in trading on Monday and triggered big falls in European shares.
“A Grexit would not benefit anyone [but] it is not really a serious threat,” said ING Bank economist Carsten Brzeski.
Indeed, a Greek departure from the eurozone would mean that Athens is unlikely to pay back the about 320 billion euros (382 billion dollars) it owes the European Union.
A decision by Greece to pull out of the euro might help to boost the nation’s export sector, but its departure would also likely trigger capital flight from the country and a surge in inflation, economists say.
Even if SYRIZA does gain power, however, the party’s leader Alexis Tsipras “has reassured investors that he will not seek to leave the currency union and would renegotiate, rather than tear up, Greece’s bailout conditions,” said Jonathan Loynes Chief European Economist with the Capital economics research group.
Certainly, much of the structure is now in place to minimise the threat of market turmoil and financial contagion to other nations as a result of speculation about a breakup of the eurozone.