Greece’s debt crisis ‘could wreck eurozone in 5 years’

Daniel Martin – Daily Mail June 20, 2011

Europe’s single currency is ‘almost certain’ to break up within the next five years as a direct result of the Greek debt crisis, international financial experts warned last night.

They said Greece could be forced to leave the eurozone as early as 2013, with weak economies such as Portugal and Ireland following in its wake.

The bleak forecast, from the Centre for Economics and Business Research, came as European finance ministers gathered in Luxembourg to thrash out plans for another huge bail-out to save the Greek economy from bankruptcy.

There were warnings last night that Britain may have to donate another £1billion to help the Greeks.

Luxembourg’s prime minister, Jean-Claude Juncker, said at the weekend that the Greek crisis threatened at least five other EU economies: Portugal, Ireland, Italy, Belgium and Spain.

Eurozone finance ministers were last night expected to release the latest tranche of the £95billion bailout for Greece agreed last year. The £11billion payment will keep its economy going for a few more weeks

But, with a weaker than expected economy meaning Greece still cannot borrow money on the markets, EU ministers are also likely to agree in principle to a second bailout.

Experts expect this to amount to another £100million or so, and it should keep Greece on track until 2014. Chancellor George Osborne, who will meet finance ministers today, has insisted that Britain would pay no part in any further European bailout.

But he accepts that the UK will have to contribute something as we have to fund our share of separate bailouts from the International Monetary Fund. This could lead to a further £1billion cost, according to the Open Europe think tank.

Chief Secretary to the Treasury Danny Alexander said yesterday: ‘There is simply no proposition on the table for the UK to contribute beyond that IMF involvement and I don’t expect there to be one.’

Greek prime minister George Papandreou pleaded with his MPs to approve a series of painful domestic reforms needed to ensure international bailout money continued to flow.

Last week, experts said the Greek crisis was a threat to the ‘whole world economy’ – and said it was a question of when, not if, Greece defaulted on its loans.

Now financial analysts CEBR have added to these concerns. They said the euro would not collapse in the short-term, because the rewards of a stable currency outweigh the cost of further loans from Germany, Europe’s largest economy.

But it will come under threat in the next few years as the cost of successive rounds of bailouts mount – meaning that it was ‘almost certain’ that the eurozone will break up by 2016 and ‘probably’ by 2013.

Chief executive Douglas McWilliams said: ‘Sooner or later both the Greek population and international creditors will tire of fighting a losing battle, leading to a break-up of the currency union as Greece pulls out, probably followed by other countries.

‘Mathematically, our forecasts suggest that Ireland could stay in any revised eurozone but the country may be hit by financial market contagion and the Government will have to consider how hard to fight a difficult battle.’

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