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Wednesday, May 16, 2012

Growing Fears for Greek Exit of the Euro

The office of Greek President Karolos Papoulias has announced that his country will be forced to hold a second general election after the parties failed to agree on a plan to enter a coalition. Talks are currently being held in Athens to form an interim caretaker Government until the next vote likely to be held in the middle of next month.

Fears are growing across the Euro zone that the Greeks will be forced out of the euro following the increasing lack of stability in their political class. There is also an expectation that it will be the extreme-left parties that will benefit most from the forthcoming elections following 5 years of harsh austerity and rising unemployment. . These parties have to various degrees been threatening to undermine the austerity model imposed by the EU and IMF under the terms of the country's bail outs. The election of such leaders and subsequent disputes with the EU could likely precipitate a withdrawal of Greece from the Euro.

The recent election of Francoise Hollande in France and comments from IMF chief Christine Lagarde seem to be hinting towards a possible growing flexibility towards the Greek situation and possible renegotiation of the terms of the second bail out however, there is also a strong resentment in some quarters that a country which accounts for only around 2 percent of the entire EU economy remains dragging the integrity of the institution down, some two years after the terms of the country's first bailout were agreed. It has been said that these countries may be pushing for a resolution to the Greek situation that allows for a withdrawal of the country from the Euro to avoid the currency from becoming even more devalued. The next few months are crucial to the future of this struggling country.

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