Dr Charles Tannock

Member of the European Parliament for London

Euro's Greek squeeze

BBC News - 1 February 2010

by Gavin Hewitt

ATHENS: I am in Greece to ride out another anxious week for the euro. It is facing its severest test since its birth in 1999.

Financial eyes remain focused on Greece and whether it can finance its debt. It needs to raise a cool 53bn euros (46bn) just this year. That becomes increasingly expensive if the markets are not convinced by Greece's plans to curb its deficit.

The recent past works against Athens. The 2009 accounts were as good as fakes; the deficit was twice what the previous goverment had claimed.

The new Papandreou administration has, at least, come clean about the figures. It has begun to tackle the deficit. There is a wage freeze on civil servants earning over 1,700 euros a month. Public sector wages are set to be cut. There is talk of a tax on luxury goods. The markets judge this a start.

The public mood is volatile. At the start of the crisis there was bewilderment when the scale of the problems were revealed. There is fear that, as one minister put it, unemployment could double. There is anger, too, that Greece seems to be in the hands of markets and outside institutions.

However, the new goverment retains much of its popularity. The question is whether it has enough support to launch a tough austerity plan and slash the budget.

On Wednesday the European Union will offer its view; how the deficit should be cut and at what speed. It is possible that that intervention will settle the nerves of the debt buyers.

The question that has been preoccupying officials is what happens if Greece can't make its payments?

No one I have spoken to believes Greece will be allowed to drop out of the euro. But all options are painful and potentially damaging.

There was talk of Chinese sovereign wealth funds financing the debt, but that would be acutely embarrassing for the euro.

France and Germany are difficult to read. They don't want to back a bail-out because it reveals the euro's potential weakness and it sends the wrong message to other members of the eurozone.

Much more likely are short-term loans that come with a stiff price tag; cuts that will be overseen from Brussels. There would be a humiliation to this but, if it comes to it, it may be the least worst option.

The drama being played out here is for the future of the euro. The news may not all be bad. As the Conservative MEP Charles Tannock said at a very interesting debate at King's College, London, on Friday night: "If the euro comes through this it will have passed its severest test and could be set to become the world's reserve currency."