Dark clouds over Europe

The headlines speak for themselves. Even Radio New Zealand this morning is sounding more realistic, even panicky – of course it's all a great 'shock'. Meanwhile trivia dominates the headlines in the NZ print media.

Mr Papademos says it would be disastrous for the Greeks to leave the Euro. I dare say it would be disastrous for the banks.

Fitch warns of mass eurozone downgrades as frontrunner to lead Greece rails at 'barbaric' austerity

All eurozone countries face downgrades to their debt ratings if the risk of a Greek exit rises following next month's elections, a leading credit agency warned last night.

The Telegraph

17 May, 2012

Fitch Ratings downgraded Greece's sovereign rating to CCC from B- and sounded a wider alert for the rest of the currency bloc. It said it would put the entire zone on downgrade watch if after June 17's poll, "Fitch assesses that the risk of a Greek exit from European Monetary Union is probable in the near term."

The agency said it had cut Greece's rating to reflect "the heightened risk that Greece may not be able to sustain its membership of EMU"

It said "the strong showing of 'anti-austerity' parties in the May 6 elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF €173bn programme".

Should the voters once again reject austerity and structural reform, Fitch said "an exit of Greece from EMU would be probable". That would be expected to trigger "a widespread default on private sector as well as sovereign euro-denominated obligations".

The agency's warning came as the front runner to become Greece's next leader, Alexis Tsipras, vowed that he would never yield to European demands to impose "barbaric" austerity.

As parliament met for a single session before its dissolution, Mr Tsipras and his principal rival traded warnings over the outlook for the debt-ridden economy.

News that the IMF was suspending its work, and the privatisation programme that was the cornerstone of the international bail-out had been put on hold, laid bare the worsening impact of the political impasse.

A caretaker government was also installed yesterday but the IMF said it would not resume contacts over the €130bn bail-out until the new government is in power.

Rival factions angrily set out their stalls to the voters. Mr Tsipras, the leader of the Leftist Syriza movement, told his supporters that voters would complete the rejection of the bail-out started on May 6 when his surprise second place derailed the austerity programme.

"They are trying to terrorise the people to make Syriza cave in. We will never compromise," he said. "The Greek people voted for an end to the bail-out and barbaric austerity. They ignored the threats and the cheap propaganda. And we are certain they will do the same now."

Mr Tsipras maintains that Greece is "on the road to hell" under the current austerity drive and that Europe will renegotiate rather than force the country out of the eurozone.

However, the conservative figurehead, Antonis Samaras, head of the New Democracy party, told his supporters that wages would halve and property prices plummet if Syriza was forced to bring back the Drachma.

"We can change everything in Greece, together with a Europe that is changing," he said. "Or we can live through the horror and isolation of a euro exit and the collapse of all that we have built."

Economists are united that the prolonged and lingering uncertainty will set Greece back further. "The rationale for what we are seeing is understandable. We are having a very difficult time and are in the fifth year of recession," said economic commentator Christos Konstas.

"But the government has run out of money and to get growth and confidence back we need investment to return in industry and infrastructure. Investors won't come back until the direction is clear."

Outgoing Greek prime minister Lucas Papademos warned it would be "disastrous" for Athens to reject the EU-IMF bail-out, but it could seek adjustments.

"A unilateral rejection of the country's contractual obligations would be disastrous for Greece, leading unavoidably outside the euro and possibly outside the European Union," he said in an open letter. "The decisions we take could seal Greece's course for decades."

Panagiotis Pikramenos, who oversees the caretaker government, said: "The country must honour the obligations it has undertaken. It cannot abrogate its obligations without reason and cause a major crisis. We must not forget that all of Europe is watching us."