The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed the German news service, Spiegel Online that Athens is considering withdrawing from the euro zone.
The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night. HT AndrewJ.
Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night.
The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda.
One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union - regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.
The Germans have reportedly gone into the meeting to fight the move. It would involve bankruptcy for Greece, and huge consequences in every other euro member.
The German finance minister has prepared a paper setting out the dire consequences of such a move.
"The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.
In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues.
At this stage it is imporant to note that this story is only sourced from one place, Spiegel Online.
Following this report, both Greece and the EU issued statements distancing themselves from the idea that Greece wants out. The New York Times noted that the Greek prime minister was "irked by speculation on debt".
Mr. Papandreou, European finance ministers and others on Saturday denied any thought of restructuring Greece’s debt, let alone having Greece exit the euro, which would allow it to devalue. And quitting the euro is considered enormously complicated and even self-defeating by numerous economists, since Greek debt is denominated in euros.
"I call on everyone, inside and outside Greece, in the E.U. in particular, to leave Greece in peace to do its job," Mr. Papandreou said on Saturday. "Greece is doing its job."
But that same report detailed the immense stresses both the Greeks and the EU are under, adding that skeptics believe "in the end, Greece and Ireland will have to restructure their debt - paying back less than face value."