- Associated Press - Monday, May 14, 2012

BRUSSELS (AP) — Leading European Union finance officials on Monday pleaded with Greece not to renege on its bailout terms and to stay the course of its painful austerity program to prevent even worse economic hardship.

Greeks fed up with the painful austerity measures gave support to anti-bailout parties in last week’s elections. Many euro finance ministers warned, however, that Athens must stick to the terms of the rescue package if it wants to remain in the 17-nation eurozone.

Ahead of a meeting Monday, the ministers seemed unwilling to offer Greece any easier bailout terms to keep it in the euro group, stressing that whether it leaves the common currency or not, it would take years of belt-tightening to ease its debt.

“An exit will solve nothing,” Belgian Finance Minister Steven Vanackere said.

His Austrian counterpart, Maria Fekter, noted that Greece was nevertheless moving closer to such an exit as the main political parties in Athens struggled for a ninth day to create a coalition government. They gathered for more talks on Monday night, and if they fail, new elections will be called.

The main political parties that agreed to Greece’s international bailout do not have the majority to create a new government, and smaller parties are reluctant to join them, noting that Greeks clearly have voted against the bailout and its related austerity terms.

“The situation is serious,” Ms. Fekter said, adding that even if there were no provisions to kick Greece out of the euro currency union, there was a theoretical possibility it could be let out of the European Union.

The EU’s executive commission said it was best for Greece to stay with the pack and bear the hardships with conditional aid close at hand.

EU Commission spokeswoman Pia Ahrenkilde Hansen said Greece should remain in the euro.

“We believe that this is the best solution for Greece, the Greek people and Europe as a whole,” Ms. Hansen said.

The gentle tone contrasted with tough talk from her boss, Commission President Jose Manuel Barroso, who told Italian television over the weekend that “if a member of a club does not respect the rules, it is better that it leaves the club, and this is true for any organization, or institution, or any project.”

Though the commission noted that Mr. Barroso was not referring specifically to Greece, his comments were among the closest a leading EU official had come to envisaging the country’s exit from the 17-nation financial project.

World markets dropped sharply Monday on fears of the fallout from a potential Greek exit from the currency bloc. The Athens stock index fell more than 4 percent, adding to a sharp drop last week, while European and U.S. markets sustained heavy losses as well.

“Markets continue to feel the pressure, and the stakes continue to rise as what was declared unthinkable a year ago or so now starts to permeate mainstream thinking in Europe,” said Michael Hewson of CMC Markets.

If Greece were to leave the euro union, its banking system would collapse under the weight of foreign debt and the economy would suffer an even sharper downturn. The government would have to default on the euro-denominated money it owes other European countries, shaking the Continent’s financial system.

Investors would worry that other European countries with weak finances — such as Portugal or even Spain —  eventually might leave the eurozone as well, causing severe turmoil in the markets.

Unsurprisingly, no one at the eurozone finance ministers meeting was calling directly for Greece to leave their currency union.

“I would like Greece to stay in the euro. It’s very important that the eurozone stays intact,” said Irish Finance Minister Michael Noonan.

But a consensus emerged that the core demands of austerity had to remain intact, whatever the politicking in Athens over a new government or fresh elections.

“We cannot come always back on the decision that we took. It is real tough for Greece,” said Luxemburgian Finance Minister Luc Frieden, whose prime minister, Jean-Claude Juncker, chairs the Eurogroup.

Prospects for a breakthrough in political talks in Athens were remote, as an anti-bailout party refused Monday to return to power-sharing talks.

“Everyone realizes that to control debt, competitiveness needs to be increased, and — too bad for the population — it is translated into some form of impoverishment linked to lower wages,” Mr. Vanackere said.

He said a return to a national currency would not solve the problem, since it would be accompanied with strong devaluation.

Copyright © 2016 The Washington Times, LLC.

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