Merkel tells Greece to back cuts or face euro exit

Telegraph
May 14, 2012

"I believe it’s better for the Greeks to stay in the euro area, but that also requires that we set out a path on which Greece gets back on its feet step by step," said the German chancellor.  Photo: AFP

Raising the spectre of a Greek exit, the German chancellor said “solidarity for the euro” was threatened by the ongoing political crisis in Athens.

Stock markets around the world fell sharply with fears mounting that a euro break-up could lead to renewed financial turmoil. The FTSE-100 index of Britain’s major companies fell by two per cent to 5465, with bank shares hit particularly hard.

The cost of Spanish government borrowing also hit a record high since the single currency was introduced because of concerns that the crisis will spread.

Today, François Hollande, the new French president, will be sworn in and, in an indication of the concern gripping Europe, will almost immediately travel to Berlin to hold talks with Mrs Merkel that will be dominated by Greece’s plight.

Attempts to form a new government in Athens have been thwarted for the past nine days, although the country’s president will meet all major parties this afternoon to discuss the forming of a “technocratic” administration rather than a coalition.

An outgoing Greek minister warned that the country could descend into “civil war” amid the chaos of a euro exit. “If Greece cannot meet its obligations and serve its debt the pain will be great,” Michalis Chrysohoidis was quoted as telling a local radio station. “What will prevail are armed gangs with Kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”

New elections may be held next month and Greek voters are likely to be warned by European leaders that their country may be ejected from the euro if they do not support parties backing austerity measures.

George Osborne, the Chancellor, travelled to Brussels yesterday to take part in meetings with other European finance ministers about the worsening crisis.

Speaking on arrival, he said: “The eurozone crisis is having a real impact on growth across Europe.

“The British recovery has been damaged over the last two years not by Britain getting a grip on its public finances but by uncertainty in the eurozone. It is that uncertainty, not austerity, that is doing the real damage to the European recovery, and indeed the British recovery.”
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