Eurozone warns Greece to accept rescue rules, or risk exit

Agence France-Presse
The EU says Greece should stick to Europe's rules for a debt rescue

BRUSSELS, Belgium – The EU warned Greece on Monday, May 14, to stick to rules for a debt rescue or risk leaving the eurozone, as deadlock in Athens and dire strains for Spanish banks return to haunt finance ministers.

Eurogroup finance ministers meet in Brussels from 1500 GMT, with feuding political parties in Athens under stern notice that Greece must respect the conditions of austerity and reform under a March deal for a second bailout.

The alternative, increasingly forecast by analysts and now being broached even among European Union political partners, is that Greece abandons the euro.

Spanish Foreign Minister Jose Manuel Garcia-Margallo, attending talks of chief diplomats in Brussels, stressed that membership of the eurozone depended on “complying with the rules of the game.”

Jose Manuel Barroso, the head of the European Commission, echoed this almost word for word on Italian television, said his spokeswoman Pia Ahrenkilde Hansen said.

Barroso still “hopes and wishes” that Greece can remain in the eurozone, but Athens must live up to its commitments, she added.

Irish central bank governor Patrick Honohan has already said that a Greek departure from the eurozone “isn’t necessarily fatal” and could “technically” be managed, Dow Jones reported.

Respect terms

The German finance ministry warned that the “only and right” way out of the crisis is for Athens to respect the terms and timetable of its reform programme agreed as part of the EU-IMF bailout.

ETX Capital trader Markus Huber said that “a Greek exit might actually be a good thing for the eurozone in the long run,” allowing EU partners to focus all their energies on how to support Spain and Italy.

European shares sank on Monday and the euro tumbled to the lowest point since January as markets increasingly speculated about the knock-on effects of an exit on the eurozone banking system and the region’s politics.

Governments had already issued Athens with a clear warning last week when they withheld some funds already approved for transfer in the immediate post-election period.

The latest moves represent something of a last throw of the dice for the EU and the eurozone as it stands after two years of attempts to shore up the debt-stricken Greek economy. These efforts have been bedevilled by the complexity of the unprecedented problems, divisions on policy and methods, and delays and political conflict in Greece.

“Brutal messages are being sent to Greece: we’ll see if that knocks some sense into the leaders of the Greek political parties,” a senior diplomat said.

Greek President Carolos Papoulias resumes last-ditch meetings with party leaders around the same time as the Eurogroup talks begin.

If a unity cabinet cannot be formed by Thursday, when parliament convenes, new elections will have to be called in June — with the possibility that the anti-EU austerity voices which secured a majority in the May 6 poll could do even better.

While events in Athens in the short-term remain outside the control of Greece’s eurozone partners, the finance ministers will be looking for the beginnings of some answers from Spain.

Public financial forecasts suggest Spain — mired in recession with one-in-four unemployed — has little chance of meeting even revised government deficit targets.

The overall goal is to meet the notional EU target of a public revenue shortfall equal to no more than 3.0 percent of gross domestic product by the end of next year.

Figures were already sliding before the scale of the problems facing Spanish banks, after the collapse of a property boom, were laid bare last week.

Drastic Spanish government reforms announced on Sunday force banks to set up a new 30-billion-euro financial cushion and to remove risky property assets from their accounts.

Spanish Finance Minister Luis de Guindos is expected to set out the Madrid government’s preferred strategy at the talks. – Agence France-Presse