Indebted Greece determined to stay in euro
Published 23/01/2010 | 05:00
GREECE should remain in the euro, where its problems "will be unequivocally easier to solve", rather than allowing a new currency to devalue, pushing up inflation and interest rates, the governor of its central bank has said.
"Those who suggest Greece might leave the eurozone are like Homer's sirens," George Provopoulos said in an article for the 'Financial Times'.
The idea of launching a new drachma "is based on flawed reasoning", he said.
A new currency would not be "like waving a magic wand". A devalued exchange rate could "increase the cost of imports, stoking inflation, and boost the cost of servicing public debt", he said in the article.
"It will be immensely less costly for Greece to eradicate its problems from within the eurozone.
"Greece will not be tempted by these short-term options, but will undertake the necessary, bold adjustments.
"While Greece's problems are extremely serious, its economic future is unwaveringly tied to the mast provided by the euro.
"It will be unequivocally easier to solve these problems from within the euro area," he said.
Greek Prime Minister George Papandreou admitted that the "unprecedented" crisis in Greece has led to "discussion on the euro". He said there is "not one day to lose" in bolstering the nation's finances, where the deficit is officially put at 12.7pc of GDP.
The Mediterranean country's finance minister George Papaconstantinou denied a report in 'European Voice' that EU officials were looking into a possible loan to help Greece tackle its deficit.
Amelia Torres, spokeswoman for EU Economic and Monetary Affairs Commissioner Joaquin Almunia, said she wasn't aware of any talks on a loan.
A spokesman for the ECB declined to comment.
Concern that Greece's government will struggle to tame what is the EU's biggest budget deficit has pushed premium investors' demand to hold the nation's debt instead of German bonds to the highest level since it joined the euro.
Mr Papaconstantinou said yesterday that Greece would not need a rescue package to reduce its deficit, while the German finance minister said Greece would have to solve its problems on its own. (Bloomberg)