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Shares slide as Greece eurozone doubts grow.


GREECE was struggling to form a unity government last night as EU countries insisted austerity remained the basis of the country's economic revival.

Eurozone finance ministers meeting in Brussels yesterday had one eye on Athens where last-ditch talks were under way between political parties to stitch together an emergency administration to run the country. But the European Commission warned that any Greek administration will have to honour the austerity policy agreed as part of multibillion-pound EU-IMF bail-out packages to keep Greece afloat.

The uncertainty hit markets, with nervous traders wiping pounds 28.5bn from the value of London's leading shares index. With little sign of a political deal in Athens, the prospect of another election rose - and with it the prospect of a result likely to reinforce public rejection of the austerity package which has severely hit jobs and incomes.

The European Commission insisted the austerity plan remained the best option.

A spokesman said: "This is the best thing for Greece for the Greek people and for Europe as a whole," said a spokeswoman.

"Nothing has changed in our position - we want Greece to stay in the euro, we think the Greek (austerity) programme is the best course for Greece and, while we respect the on-going efforts in Greece (to form a government), we say that Greece must honour its (austerity) commitments." The Spanish government, now struggling with its own economic crisis and likely to need a massive EU bail-out, urged Greek politicians to resolve their differences and stick to the austerity path to avoid further economic "contagion".

Spain's government was hit yesterday by painful rises in the cost of borrowing money as traders worried by the situation in Greece avoided its debt.

Prime Minister Mariano Rajoy defended his government's harsh austerity measures aimed at correcting Spain's grim economic forecast, one day after tens of thousands of people took to the streets in protest against his handling of the country's worst crisis in decades.

Mr Rajoy said the measures were "necessary" given Spain's dire situation, which includes a staggering unemployment rate of almost 25%.

The scale of the crisis raises the real prospect of Greece leaving the eurozone - possibly with further bail-outs for Athens involving all 27 member states. But Downing Street insisted any funding to stabilise Greece during the process of leaving the eurozone should be for the eurozone countries alone - just like bail-outs for those inside the single currency bloc.

Deputy Prime Minister Nick Clegg warned eurosceptics against gloating over the plight of the euro.

He said: "We as a country depend massively on the prosperity of the eurozone for our own prosperity, which is why I can never understand people who engage in schadenfreude - handwringing satisfaction that things are going wrong in the euro."

Answering questions during a visit to a school in Islington, he added: "We have an overwhelming interest - whatever your views are on Brussels and the EU - in seeing a healthy eurozone.

"That's why I very much hope, buffeted by these latest scares and crises in Greece and elsewhere, that the eurozone moves as fast as possible to a sustainable solution because if the eurozone is not growing and the eurozone is not prosperous it will be much more difficult for the United Kingdom economy to gather momentum."

The Brussels talks between eurozone finance ministers are unlikely to reach decisions on the next steps, but the 17 are to be joined today by Chancellor George Osborne and the rest of the non-eurozone ministers for another assessment of the state of play.

And despite pressure from new French president Francois Hollande to ease austerity and back growth, there remains no sign that Greece's partners are prepared to relax the terms of the bail-out deals.
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Publication:Western Mail (Cardiff, Wales)
Geographic Code:4EUGR
Date:May 15, 2012
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