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Euro Zone on a Slippery Slope With Greece
January 14, 2010

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Frankfurt. The euro zone is facing one of its most serious internal crises ever as European Central Bank governors met on Thursday, with fiscal problems in Greece and other members of the bloc pushing interest rate issues to the back burner.

“Arguably, the most eagerly awaited aspect is what ECB President Jean-Claude Trichet says about Greece,” Deutsche Bank economist Mark Wall said.

Athens is not the only euro zone capital causing alarm in Frankfurt, however.

Credit ratings agency Moody’s has warned that Portugal’s economy also faced a “slow death” unless it becomes more competitive and officials collected more tax revenues.

International Monetary Fund experts have begun a weeklong mission at Greece’s invitation to mentor the government on how to plug the huge hole in its public finances.

Although the 16-nation euro zone is no longer in recession, the financial crisis exacerbated fiscal disparities among its members, presenting the ECB with a patchwork quilt of problems that is fraying the bloc at its seams.

Germany should manage to hammer its bloated deficit back into shape while “peripheral” members like Greece, Ireland, Portugal and Spain must “step up budget consolidation far more than the core countries,” Commerzbank chief economist Joerg Kraemer warned.

An ECB paper published last month concluded there was little chance of a member leaving or being forced out, but the fact the bank produced such a document at all raised eyebrows in financial markets.

Greek Prime Minister George Papandreou was insistent on Wednesday that there was “no way” the country would abandon the euro or seek aid from the IMF.

“There is no way we will leave the euro or seek recourse to the IMF. We do not need to,” Papandreou told a nationally televised news conference.

The Greek public deficit rose to 12.7 percent of output last year, far above the 3 percent ceiling permitted to countries that share the single currency.

Greek debt was estimated at 113 percent of the nation’s total output, meanwhile, and will likely climb to more than double the European Union limit of 60 percent.



Agence France-Presse