Show Hide image

Euozone leaders fear Greek default

The Greek government remains hopeful, while European leaders prepare for a Greek default.

The Greek government has been gearing up to pass a five-year plan for €28.4bn euros worth of spending cuts, tax increases and privatisation plans, since surviving Wednesday's confidence vote. The vote on these measures will take place in the coming days and is the only remaining condition standing between the country and the next tranche of its bail-out package, which now stands at €110bn.

The ruling party holds a small majority, and many speculate that opposition from other parties, along with widespread public disapproval being demonstrated through strikes and protests, is strong enough to prevent this bill from going through. These factors have added to the fear of Greek default in the eurozone.

Austrian Chancellor Werner Faymann said Sunday that he could not rule out a Greek default, and German Finance Minister Wolfgang Schaeuble warned that Europe is preparing for the worst.

"We are doing everything we can to prevent a perilous escalation for Europe but must at the same time be prepared for the worst," Schaeuble said. "If things turn out differently than everyone expects that would of course be a major breakdown. But even in 2008, the world was able to take coordinated action against a global and unpredictable financial market crisis."

If Greek politicians are able to pass the austerity measures, Greece will receive the aid package. The package will primarily consist of funding from other eurozone countires, but the EU and the IMF were hoping that private investors' contributions would total €30bn of the possible €120bn package. However, due to warnings that their involvement may result in an automatic default for Greece, this goal number beginning to look unlikely.

German banks were hoping to receive state guarantees for voluntarily rolling over Greek debt, but Chancellor Angela Merkel declined the request on the grounds that it would harm German taxpayers.

Britain's Treasury has announced there are "no specific proposals" for the UK private sector to get involved in the bail-out.

President Nicolas Sarkozy has said that French banks are willing to contribute funding to the package, but nothing more specific has been decided.

Yesterday Chinese premier Wen Jiabao promised that China would continue buying European sovereign debt.

Following an agreement to buy Hungarian bonds, he said: "That is China lending a helping hand to Hungary at a time when that country is in difficulty. We will do the same thing for other European countries. [Since the sovereign debt crisis,] China has actually increased the purchase of government bonds of some European countries and we have not cut back on our euro holdings."

George Soros, the Hungarian-American financier, believes it is inevitable that a country will quit the euro.

"There are fundamental flaws that need to be corrected," Soros said.

Greece's deputy prime minister, Theodoros Pangalos, publicly stated that it would be "immense stupidity" if their country were to quit the euro. He expressed optimism regarding the coming vote on the austerity package, but did admit concern over the passage of specific laws to implement these plans.

"That's where we may have problems. I don't know whether some of our members of parliament will vote against it. It's possible," Pangalos said.