News Column

New Eurozone Crisis Amid Austerity Fight

May 8, 2012

A new eurozone crisis loomed Tuesday with Greece teetering on political chaos, France colliding with Germany on austerity and Spain readying new bank bailouts.

Leaders of two left wing Greek parties were to try to arrange a new "national salvation government" coalition Tuesday after a center-right attempt collapsed Monday. No party won a majority in Sunday's general election, which became a referendum against austerity measures imposed by international lenders.

With the left wing attempts widely seen as likely to fail, the country braced for a repeat general election June 17.

Technocrat caretaker Prime Minister Lucas Papademos, appointed Nov. 11, 2011, is to leave office next week, to be followed by another caretaker administration before the repeat election amid a fast-deteriorating economy that analysts increasingly fear will go bankrupt in August if it reneges on earlier-made promises tied to deep spending cuts and higher taxes to secure a bailout.

Greece's creditors are to decide in August whether to release another installment of financial aid in its $171 billion bailout.

Athens faces the prospect of being unable to meet pension, salary and debt commitments next month, the Financial Times said.

A Greek default would lead to problems at the European Central Bank and the International Monetary Fund, which are using taxpayer money to foot most of the bill for the bailout, The New York Times said.

Other countries that lent directly to Greece would also face steep losses, including Spain, which many analysts say could need a financial bailout of its own.

A Greek default could also hurt Germany and France, which are on the hook for a large portion of the bailout bill, the analysts say.

"A Greek eurozone exit is now firmly on the cards," Fidelity Worldwide Investment sovereign debt analyst Tristan Cooper said.

Amid the mainline party shuffling, the far-right, ultra-nationalist Golden Dawn party -- whose symbol is a Greek version of the swastika and whose members perform Nazi salutes at rallies -- received 7 percent of the vote, enough to enter Parliament for the first time, with 21 seats.

At a televised news conference Sunday evening, party leader Nikolaos Michaloliakos demanded journalists stand upon his arrival as a sign of respect, and banned those who did not.

He celebrated his party's political breakthrough with a threat: "Those who have betrayed the homeland must now be afraid."

The party's Web site carried a death threat against a Greek journalist who suggested Michaloliakos might be a candidate for a police investigation rather than a parliamentary seat.

"Greece is only the beginning," Michaloliakos shouted in his news conference. "You know exactly what I mean."

In France, President-elect Francois Hollande promised to roll back Sarkozy administration austerity measures and add measures to stimulate growth, while German Chancellor Angela Merkel warned all struggling eurozone countries they must stick to their commitments to international lenders.

Hollande, who has never met Merkel, said his first trip as president would be to Berlin May 16, the day after he is sworn in.

His central campaign pledge was to "reopen the euro's new rulebook."

Merkel insisted during a news conference Monday that, despite Hollande's vows to give "a new direction to Europe," the fiscal pact negotiated with Sarkozy and endorsed by 25 European Union member states was "not negotiable."

She said Hollande would be "welcomed with open arms here in Germany by me."

Merkel has her own electoral problems.

After losing a regional state election Sunday, her Christian Democratic Union party faces another test next weekend in the key Westphalia region, including the cities of Arnsberg, Bielefeld, Dortmund, Minden and Munster.

The euro crisis flared anew in Spain as Prime Minister Mariano Rajoy said his country was ready to inject billions in public money to bail out No. 3 Spanish bank Bankia SA and possibly other ailing banks wrestling with a housing-market collapse.

The announcement Monday was a reversal of policy, with Madrid previously insisting no additional state money would be needed to clean up the country's banking sector.

Bankia Executive Chairman Rodrigo Rato, a former International Monetary Fund managing director, resigned from the bank soon after the news broke, amid growing questions from international lenders about his management since the bank was formed in December 2010 out of a merger of seven Spanish savings banks, or cajas.

Rajoy insisted the bank bailout would not compromise the tough targets set by Brussels to reduce the budget deficit.

Investment managers say Spain's financial system would be at risk if Bankia is not propped up, El Pais reported.

The bank could need as much as $13 billion to clean up its balance sheet, the newspaper said.

Spain -- which said it might save $40 million a year by docking an aircraft carrier -- is struggling to cope with an austerity drive that has contracted the economy 0.3 percent each of the past two quarters and pushed the jobless rate to nearly 25 percent of the workforce.

More than half of Spaniards under 25 are jobless.

Source: Copyright United Press International 2012

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