Continued Fears Over Greek Exit

Greece is back in the spotlight as European officials will issue an update on Greece’s progress next month before deciding whether to release the next tranche of the rescue package to the stricken country. Greece could run out of cash by October and would have to print its own currency to pay pensions and public sector wages. Prospects of Greece’s exit from the Euro remain a real risk. A Greek bank run is extremely likely. Greek savers withdrew over €2 billion from local banks in the first quarter of 2012 and there has been a surge of investment in “safe havens” such as Germany and the UK. 

There are concerns over whether Greece will be able to meet the austerity targets imposed on them as little progress has been made to date. Greece has not embarked on the privatisation of its public sector assets and has failed to recapitalise its banks. The weakening European economy makes it even more difficult to keep on top of it’s debts and austerity measures mean that growth prospects are low. There are also signs that Germany is losing its patience with Greece for repeatedly failing to deliver its promises and the country is seen as a “bottomless pit”. 

So far, the fear of contagion and meltdown following a forced Greek exit has prevented German chancellor Angela Merkel from taking action. However, the German taxpayers will not support further bailouts to Greece for much longer and there is increased unrest in Mrs Merkel’s own government over this issue. Angela Merkel now faces a dilemma over whether to risk the unravelling of the Eurozone or that of her own government.