‘It’s all over for Greece’ as euro endgame looms

THE “endgame” in the eurozone’s debt crisis is fast approaching, analysts declared yesterday, amid growing warnings from politicians and bankers that the reality of a Greek default and possible exit from the eurozone can be denied no longer.

German chancellor Angela Merkel and French president Nicolas Sarkozy will hold a conference call with Greek premier George Papandreou today, as Europe’s big two seek to hold the line that Greece’s debt can be managed in an orderly fashion.

But that possibility was being shot down by market analysts last night. They are preparing for a showdown on Greece by the end of the month, and the possibility of contagion sweeping through indebted nations such as Italy and others, including France, exposed to tens of billions of pounds worth of potentially worthless Greek bonds.

Mrs Merkel sought to play down fears of a Greek default, but spoke as reports circulated in Germany that Berlin had already decided the game was up. One senior German official reportedly said: “Enough is enough.” The report, in Der Spiegel magazine, said Mrs Merkel had now privately faced up to the inevitable, with the only option being whether a bankrupt Greece stays in the monetary union or not.

It follows comments by Germany’s economy minister at the weekend, raising the prospect of a default. EU figures are said to have lost patience with Greece over delays in its reform programme, and will withhold the next tranche of bail-out cash – thus preventing Athens paying public salaries and pensions.

Greece has conceded it is set to miss its first target on privatising public assets, which was a condition of receiving its next tranche of European Union/International Monetary Fund aid. It promised to deliver €1.7 billion (£1.4bn) of state asset sales by 30 September, to show a new income stream was on-coming, but is on course to raise just €400m (£347m).

The sales are being stymied by opposition from Greece’s strong public sector unions. In the case of the state-owned Greek electricity giant DEI, unions have threatened to cut the power supply if privatisation goes ahead.

With speculation that Greece’s bail-out funds may be withdrawn, interest rates on the country’s ten-year bonds shot up to over 24 per cent yesterday. Analysts said that the crisis was now reaching its climax.

Strategists at JP Morgan said: “The endgame on European monetary union is approaching fast.” Julian Callow, chief Europe economist at Barclays Capital, added: “September is likely to be a defining month for the euro area’s destiny.”

Sir Howard Davies, the former deputy governor of the Bank of England, added: “I think it is all over for Greece now. It is hard to see an outcome that leaves the Greeks not defaulting and it is hard to see them remaining in the eurozone because the Germans and the other strong governments … are not prepared to underwrite the whole of the eurozone.”

Dutch finance minister Jan Kees de Jager added to speculation by revealing he was “prepared or preparing for all conceivable scenarios and even the almost inconceivable scenarios”.

However, the increasing likelihood of an official Greek default or full-blown exit from the eurozone last night raised fresh fears over the impact it would have on the rest of the continent.

Mrs Merkel said yesterday that a “domino effect” would be likely if Greece was forced to leave the euro, with Italy deemed the most vulnerable to panic in the financial markets.

That in turn may put fresh pressure on French banks, which have invested heavily in southern European nations, analysts warned. They said France could be forced to pump in cash to its own banking sector in the coming days, as happened in the UK in 2008.

One senior investor, Mohamed El-Erian, of Pacific Investment Management, warned: “We’re getting close to a full-blown banking crisis in Europe.”

Such a crisis has also raised fears in America where president Barack Obama has warned that a Greek collapse could suck in both Spain and Italy. In a sign of how serious the crisis is being treated by the US, treasury secretary Timothy Geithner will travel to Europe on Friday to meet eurozone finance ministers.

Domenico Lombardi of the Washington think-tank, the Brookings Institute, warned hopes that a Greek collapse could be cordoned off were fanciful. “It would be almost impossible to draw the line. You could devise a framework for an orderly exit in normal circumstances, but we have gone much too far for that,” he said. But Mrs Merkel said: “Everything I hear from Greece is that the government has hopefully understood the signs of the time and is now doing the things that are on the daily agenda.”

Last night, Scots Tory MEP Struan Stevenson said: “The frugal and responsible Northern Europeans are getting heartily sick of having to bail out the profligate and irresponsible Southern European economies. The only solution is to throw Greece out of the eurozone, a club it should never have been allowed to join in the first place.”