Greece 'should leave eurozone to avoid civil war'

6 September 2010

Greece has been advised to leave the eurozone rather than imposing further austerity measures which could push the country into "civil war".

The warning came from Hans-Werner Sinn, the head of Germany's IFO Institute, who stated that dropping the euro was the "least bad" option available to decision makers in Greece.

In comments reported by the Guardian, he said: "The policy of forced 'internal devaluation', deflation and depression could risk driving Greece to the edge of civil war.

"It is impossible to cut wages by 30 per cent without major riots.

"Greece would have been bankrupt without the rescue. All the alternatives are terrible, but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks."

But a directly opposite view on the issue has been taken by Jean Claude-Trichet, the president of the European Central Bank.

He described the prospect of Greece reverting back to the drachma as the "worst possible option" and said that the euro had been created with the intention of making Europe a more prosperous and stable continent.

Earlier this year, the International Monetary Fund and other eurozone nations agreed a three-year €110 billion ($141 billion) emergency aid package for Greece to stop the country from defaulting on its sovereign debt.

In return, the country's government has been told to cut the deficit, leading to a program of wage and pension cuts and tax hikes.

A recent MRB poll showed more than 80 per cent of Greek citizens believe further tough measures will be implemented, with almost 46 per cent stating they think it is likely the country will go bankrupt.

Last month, Alexander Kyrtsis, a UBS AG analyst, told Bloomberg that Greece's major banks may be pushed into mergers in order to deliver more robust balance sheets for the financial institutions.

By Asim Shah

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