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Greece nears exit from eurozone as EU offers no solutions

ATHENS, Greece — European Union leaders insist they want to keep Greece in the eurozone but are putting off any agreement on how they hope to accomplish that.

Greece says it wants to stay in the eurozone, but until after elections, it's uncertain whether it can implement the austerity that the EU has set as a condition for doing so.

Essentially, both are playing for time — about a month — but whether financial markets will wait or force their hand remains to be seen.

Concerns that European leaders lack the political will to tackle economic problems have worried the markets for weeks.

Among the 17 countries that use the euro, seven are in recession. Business confidence is under pressure, and banks are feeling the squeeze. The biggest fear is that if Greece cannot stay in the eurozone, larger economies — such as Spain and Portugal — could face the same fate.

"The breakup of the eurozone will be a disaster. Greece could leave, and others could leave, and this would be a huge financial tsunami," said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong. "Europe is not doing enough, and the market may not wait for them."

Greece has gone through round after round of spending cuts and tax hikes to slash its deficit and rein in its debt in exchange for international bailout loans.

But the country is now in its fifth year of recession, and many argue it cannot hope for a recovery if it sticks to the deal. And Greeks are calling for better terms or, at least, for the pace of austerity to slow.

In a general election this month, neither of Greece's two main parties, supporters of the bailout deal, fared well. Instead, minor parties threatening to renege on those commitments saw popularity surge. A new round of elections is set for June 17.

If Greece reneges on bailout terms, the flow of funds will stop and the country could face a messy exit from the euro bloc as it must print its own currency to pay its way.

At a summit in Brussels, EU leaders failed to offer any reprieve to struggling Greece. Instead they reiterated that they supported Greece's eurozone membership — provided it stuck to terms of the bailout deal.

José Manuel Barroso, president of the European Commission, told a post-summit news conference: "We stand by Greece. We expect that Greece also stands by its commitments."

Greece nears exit from eurozone as EU offers no solutions 05/24/12 [Last modified: Thursday, May 24, 2012 9:02pm]
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