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EC denies Greek exit strategy plan

May 18, 2012 at 4:15 PM   |   Comments

ATHENS, Greece, May 18 (UPI) -- The European Commission Friday said it is determined to keep Greece in the eurozone and isn't working on an exit plan.

EU Trade Commissioner Karel De Gucht was quoted by a Belgian newspaper as saying the EC and European Central Bank were working on an emergency plan in the event Greece drops the euro and defaults on its obligations, ekathimerini.com reported.

"We completely deny that we are working on any such emergency plans," a representative told Market News International.

"We are concentrating all our efforts on supporting Greece and keeping it in the eurozone."

German economist Dirk Schiereck of the Technical University in Dortmund warned the Greek banking system could collapse if people keep pulling money out as uncertainty continues.

"When a lot of people withdraw their savings, however, banks end up with a financial gap which they have to cover," Schiereck said. Banks normally could borrow funds to cover obligations from the central bank but the central bank in Athens is short of funds.

"There is an acute danger that the banks would become insolvent and collapse," Schiereck told Deutsche Welle.

Alexis Tsipras, the head of Greece's Radical Left group says, said Greece would repudiate its debts if it is denied funding.

"Our first choice is to convince our European partners that, in their own interest, financing must not be stopped," Tsipras told The Wall Street Journal.

"If we can't convince them -- because we don't have the intention to take unilateral action -- but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors."

Tsipras, 37, is president of the Synaspismos political party and head of the Coalition of the Radical Left parliamentary group, known as SYRIZA.

SYRIZA is leading in opinion polls ahead of the follow-up vote next month after becoming Greece's second-biggest party in an inconclusive May 6 general election that left no party or coalition with enough seats in Parliament to form a government.

Tsipras accused pro-euro politicians Tuesday of trying to blackmail Greek voters into supporting further austerity measures. He said his party would "not betray the hopes and expectations of voters who rejected the bailout."

About 70 percent of votes cast May 6 went to anti-austerity parties.

Almost 54 percent of adults surveyed after the election said Greece should continue to carry out reforms mandated by the International Monetary Fund, European Union and European Central Bank to stay in the eurozone.

Thirty-eight percent said they would reject the program even if it meant immediate bankruptcy, said the poll of 1,002 people, conducted May 10-11 by Rass SA and published Monday in Greece's Eleftheros Typos newspaper. No margin of error was given.

Fitch Ratings Thursday downgraded its credit ratings on Greece two notches further into junk territory, pointing to the increased risk Greece would exit the eurozone.

"Whatever we do, things will be difficult," Tsipras told the Journal.

"But it will also be difficult at the same time for all of Europe because the euro will collapse" if Greece's funding is cut off, he said.

The IMF, EU, ECB and other eurozone leaders had no immediate comment on Tsipras' remarks.

Greece's economy, in its fifth year of recession, is forecast to shrink 4.7 percent this year. Some private economists say the contraction could be more than 7 percent, the Journal said.

Spain's economic flames leaped higher Thursday evening, as the country's borrowing costs rocketed to unsustainable levels and the country's banking sector was hit by mass downgrades.

Moody's Investors Service slashed the ratings of 16 Spanish banks, citing the reduced ability of Madrid to provide support to the sector, as well as the "adverse operating conditions" characterized by a renewed recession.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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