Eurozone edgy as it considers Greek exit

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BRUSSELS, May 24 (UPI) -- European market analysts are calling it both ways on an exit of Greece from the 17-member eurozone, as the drama of economic woes deepens on the continent.

"I don't think there's an imminent Armageddon. So the euro crisis will probably go on and on," The New York Times quoted Society Generale economist James Nixon as saying in London.

On the other hand, with recent Greek elections failing to produce a coalition government in Athens, European leaders are struggling to negotiate any concrete answers to threats from the Syriza party, which opposes continuation of the austerity programs that are the terms for the emergency bailout program that Europe has already assembled.

A second round of elections in Greece is scheduled June 17.

The Syriza party, which gained standing in the recent election, is running even with the New Democracy party, which proposes to continue with the tough terms laid out in the emergency loans.

But, as European leaders exited a summit late Wednesday without agreement on region-wide euro bonds, darker forecasts were offered.

"A deepening and spreading economic downturn will further reduce the currency union's chances of survival and looks set to put more downward pressure on the euro exchange rate," wrote Capital Economics economist Jennifer McKeown.

Investors played their hunches. Yield spreads in Europe between German notes and Spanish bonds widened, as 30-year German bond yields hit a record low. The euro also slipped to $1.2573, the lowest it has been since July 2010.

This still leaves European leaders the problem of developing contingency plans for a Greek exit the eurozone, the 17 countries that use the euro as currency, but not pushing the panic button just yet. The next Greek elections could also end up in a stalemate, while economic data keeps up the pressure to do something.

In Brussels, French President Francois Hollande, played down differences of opinion on the euro bond.

"Some countries were completely hostile, others see them in the very long term and others think it could be sooner," he said, keeping safely away from naming Germany specifically, the Times reported.

"We had different points of view concerning euro bonds. I laid out the German position, that we need much stronger economic coordination in the euro zone," said German Chancellor Angela Merkel.

Germany is insisting Greece at least abide by previous terms of the emergency loans. But Merkel also said funds could be made available that would ease the burden of austerity budgets. "We offered to do everything to mobilize the structural funds to assist Greece in creating growth," she said.

Eurozone finance ministers agreed Monday to develop national contingency plans in case Greece drops out of the common currency, eurozone officials said.

The agreement, following a recommendation from a eurozone finance ministers working group, called for each eurozone country to "prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro," officials said.

The contingency plans would seek to buffer government bond markets, other financial markets and banks in case Greece leaves the common currency..