Elections are to be held in Greece on June 17 after Tuesday’s final talks among the political parties to form a coalition government failed. A caretaker government will now be appointed by President Karolos Papoulias to administer the country until June’s poll – which is likely to result in an anti-bailout government, thus threatening Greece’s membership of the eurozone.

Malta’s share of this loan amounts to €74.54 million, of which about €45 million has been paid out so far. Malta’s contribution to the EFSF amounts to €704.33 million

European leaders have made it clear that aid to Greece will be stopped if promises given in return for the bailout are not kept. If so, Greece could go bankrupt as early as next month with many analysts believing this will almost certainly mean a return to the drachma as Greece’s national currency.

“There is now a considerable danger that Greece simply runs out of money next month – that it can’t pay wages, can’t run public transport, can’t maintain infrastructure and that the country just descends into complete chaos,” said Jonathan Loynes, chief European economist at Capital Economics was quoted as saying by the international media.

EU politicians have been adamant that Greece’s future lies in the hands of the Greek people, but that Greece has to play its part in dealing with this crisis and will have to face the consequences if it moves away from what it had already promised.

“The future of Greece in the eurozone lies in the hands of Greeks. If Greece strays from the agreed reform path, then the payment of further aid tranches won’t be possible. Solidarity is not a one way street,” German Foreign Minister Guido Westerwelle said last Friday.

Finance Minister Tonio Fenech was on the same wavelength when he spoke to The Times Business last week: “If the Greek people want to default on their debts and face the consequences, it’s their choice. Unfortunately the population at large still believes that somebody owes them a living. In reality Europe does not owe Greece a living,” he said.

A Greek exit from the eurozone would occur because without the release of additional loans the government would run out of money to pay social security and public sector wages. Furthermore, the European Central Bank could withhold needed funds from Greek banks, causing them to collapse. Greece would then need to pass a new currency law, redenominate all domestic contracts in a new drachma, impose exchange controls (illegal under EU law) , secure the borders to limit capital flight (also illegal under EU law) and take steps to introduce a paper currency.

A Greek default and an exit from the eurozone would have catastrophic consequences for Greece and the outlook for the single currency area would of course worsen with fears of a contagion effect on countries like Spain, Portugal and Italy. Greeks, for example, could end up with their bank accounts frozen and ATMs closed.

German Finance Minister Wolfgang Schäuble, however, recently suggested that a Greek eurozone exit would not be so catastrophic for the EU. Germany, he said, would like to keep Greece in the eurozone, but if attempts fail “we’re better prepared than two years ago,” he said.

However, foreign banks hold $54.2 billion in Greek government bonds, with 96 per cent of that owned by European banks, and these will be badly affected by a Greek default. German lenders were the largest foreign owners of Greek government bonds at the end of a last year totalling $22.7 billion, while French lenders came in second with $15 billion of exposure. A Greek default could plunge Europe firmly into recession and all eyes will be on countries such as Spain, Portugal and Italy to see how the markets are reacting.

The EU has certainly been generous with loans to Greece. Bilateral lending to Greece by EU member states has amounted €80 billion, with €52 billion paid out so far. Malta’s share of this loan amounts to €74.54 million, of which about €45 million has been paid out so far. Meanwhile loans to Greece guaranteed through the European Financial Stability Facility (EFSF) amount to €780 billion, with Malta’s contribution amounting to €704.33 million.

Greece’s continued membership of the EU could also be in doubt if it chooses to leave the eurozone. This is because the Lisbon Treaty allows an exit from the EU but no legal framework exists for an exit from the eurozone. There will therefore be huge legal problems ahead if Greece tries to leave the eurozone, which is actually illegal under EU law. Any future negotiations between the EU and Greece are bound to be extremely difficult.

Greece’s economy is in shambles and its GDP is expected to contract by 3.5 per cent this year. The country’s unemployment rate has shot up to 15.9 per cent in the first quarter of this year, up from 14.2 per cent in the previous quarter. The government recently reported that the country’s deficit actually grew by 12.9 per cent during the first five months of this year, which was 13.2 per cent higher than where it was projected to be. Whatever happens, times will continue to be very hard for the Greeks, irrespective of whether they remain in the eurozone.

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