Europe slowdown adds more tension to Greek drama


Europe’s economic slowdown has hit the engine-room of the euro zone, including Germany, gloomy new indicators have revealed, adding urgency to the region’s struggle to keep Greece’s debt crisis from tearing the single currency apart.

So far, the 17-nation euro zone’s downturn has been confined mainly to its periphery, but an index measuring broad economic activity across the monetary union in May showed its weakest outcome since mid-2009, during the global financial crisis.

The composite PMI on Thursday indicated core nations such as Germany and France were being caught up in the downturn, even as they made contingency plans to deal with financial and economic turmoil in the event Greece quits the euro, Reuters reports.

Italy, which could be on the front line of speculative attacks on euro markets if Greece went back to the drachma, put a brave face on the situation, saying the most probable outcome was still that Greece would remain in the euro zone.
“Anything can happen, but I think the most probable outcome is the one which is most positive for Greece and for all of us,” Italian Prime Minister Mario Monti told Italian TV.

He said Greece’s euro zone partners had been wrong to insist on overly rapid reforms and fiscal adjustment, and that he did not expect it would be long before European countries were ready to introduce common euro zone bonds.
“Italy is very much in favour of the creation of euro bonds when the time is right, and we do not expect it to be too far off,” Monti told an earlier news conference.

At least half of euro zone governments, as well as banks and large companies, are making contingency plans in case Greece decides to quit the euro. Despite Monti’s comments, his deputy economy minister said Rome was ready for such a possibility.


Greek voters will signal their intentions at a fresh general election on June 17, a ballot that has turned into a referendum on whether Athens should continue with an austerity drive that is the price of continued fiscal support from its euro partners.

Greece’s anti-bailout leftist SYRIZA party is maintaining a lead ahead of the elections, according to an opinion poll on Thursday. Greece held elections on May 6 but that vote left parliament divided evenly between groups of parties that support and oppose austerity conditions attached to a 130 billion euro ($164 billion) rescue agreed with lenders in March.

The Public Issue/Skai TV poll showed SYRIZA leading with 30 percent of the vote, four points ahead of the conservative New Democracy party, which is backing the bailout. If repeated on June 17, this would fall short of enabling SYRIZA to govern alone but give it a decisive role in forming a new government.

Greece’s deficit means that without the EU/IMF money, which would stop flowing if Athens were to tear up the agreement on reforms, it would not be able to pay salaries and would have to leave the euro zone and start printing its own currency.

However, another opinion poll indicated support for SYRIZA did not mean Greeks wanted to ditch the euro.

Three-quarters of decided Greek voters back the euro, according to an Ipsos poll, which surveyed people in Greece, Germany, France, Italy and Spain on whether they would vote to keep the euro if their countries held a referendum tomorrow.
“Regardless of the turmoil and the debate that’s going on in these crucial countries, it would seem that for the time being, people want to stick with the euro,” said John Wright, senior vice president of global public affairs at Ipsos.

Many Greeks, though, are not taking chances on banks being able to keep their money safe and have resorted to hiding cash at home – creating a new target, police say, for gangs that usually prey on “hard targets” such as the banks themselves.

No one knows how much cash is stashed in Greek homes – in cupboards, at the back of the ice-box, beneath the floor or under the mattress – but it could well be in the billions, and burglars are after their share of loot.


Common euro bonds, which would allow weaker nations like Greece to borrow with the collective backing of the bloc, are back on the agenda as Greece’s possible exit looms larger.

France’s election on May 6 of a Socialist president, Francois Hollande, has changed the tone of the debate on euro bonds. He urged a reluctant German Chancellor Angela Merkel and other European leaders at talks on Wednesday to consider recourse to euro bonds among other measures.

Merkel, seen as an architect of the austerity prescription for Greece, now looks increasingly vulnerable on the euro zone crisis. Other European leaders have rallied around Hollande’s call for a new emphasis on growth alongside debt-cutting.

On euro bonds, Germany’s opposition Social Democrats (SDP) and Greens have taken a similar line to Hollande. But there were signs on Thursday they might instead accept a compromise plan to mutualise only a proportion of members’ sovereign debts.

This would involve mutualising the debts of euro zone countries beyond 60 percent of GDP.

The euro crisis has also thrown a spotlight on the vulnerability of commercial banks to a full-blown crisis of confidence in the single currency, especially in the indebted countries of southern Europe, such as Spain.

Spain is considering creating a single nationalised bank out of its failed lenders, including problem lender Bankia, if the state cannot find buyers for state-rescued banks, a senior Economy Ministry source said.