A recent report on Der Spiegel online, the website of a prominent German news magazine, reported on 6 May that Greece was planning to exit the Eurozone, the grouping of European nations which use the common currency, the euro. The immediate reaction of currency markets was for the euro to lose over 1 % of its value in afternoon trading against the U.S. dollar, highlighting the perceived problems to the currency that would be caused by Greece’s exit. The European Commission and the Greek government have both denied these rumors, however, Der Spiegel continues to post the story online.
Five years ago the notion that one of the original, founding members of the Eurozone, would actually leave the common currency was unthinkable. However, the severe economic crisis that has gripped Greece in the wake of the global financial downturn has meant that the government has been unable, without outside help, to meet its debt obligations. Membership in the Eurozone has its benefits, but Greek government officials and some economists have complained that the country is restrained by the Eurozone rules from dealing with the financial crisis effectively. In light of these problems, and the debt crisis contagion that has spread to other Eurozone countries like Ireland and Portugal, the idea that one or more Eurozone member states might leave the common currency is certainly more believable.
The effect of a Greek departure from the euro could be disastrous for Europe. According to the Der Spiegel report, European finance ministers concerned about the rumored decision by Greece to leave the euro, met on Friday evening, May 6, in Luxembourg to consider their options. A paper prepared for the meeting, quoted by Der Spiegel, estimates that eurozone countries would have to write off billions in loans and financial obligations owed to them by Greece should it leave the currency. Germany would be particularly hard hit.
CNN International has reported that their sources were unable to confirm the Greek story, and is reporting it as false. Nevertheless, the fact that the Eurozone is vulnerable to such rumors underlines the continued fears over the stability of the common currency in the wake of the financial difficulties suffered by several of its member states. Ireland and Portugal have both suffered similar problems to Greece, and it is now expected that Spain may also, in light of its rising unemployment and prolonged economic stagnation, have to seek an economic bailout from its European partners to stave off a similar debt crisis. Spain would be by far the largest European economy to suffer from such problems to date.
Eye on Europe