Failure by Greece to meet all the conditions laid down by Europe and the International Monetary Fund for new bailout funds would lead to its exit from the euro zone, Luxembourg's finance minister has said.
Markets have adjusted and sufficient firewalls have been erected in Europe to limit the financial damage should Greece decide to default and leave the monetary union, Luc Frieden said.
"I still think that we should do our best to keep the euro zone with all its members. But again, the key lies with Greece today," Mr Frieden told the Atlantic Council after meeting with the US Treasury.
"And therefore if the Greek people or the Greek political elite do not apply all of these conditions - and I do know that is very difficult for the Greek people and I do not underestimate the problems that it creates for Greece - if they don't do this, I think they exclude themselves from the euro zone and the impact on other countries now will be less important than a year ago."
Rioting in Athens has intensified and politicians resigned in protest over a €3.3 billion austerity package.
The programme includes cutting the minimum wage by 22 per cent for a country where youth unemployment is over 50 per cent. Parliament approved the measures this weekend to meet the requirement that it reduce its budget deficit to 120 per cent of GDP by 2020 to qualify for a second bailout from the IMF, ECB and the European Commission.
Greece is staring at sovereign default unless it receives €130 billion in fresh aid by March 20th.
Italian prime minister Mario Monti warned in Washington last week of an "explosion" if Greece failed to win more financial support to avert default. But Mr Frieden delivered a contrasting message, saying that financial contagion is less of a risk today than a year ago, now that the European Financial Stability Fund and its successor are in place.
When the Eurogroup, made up of euro zone finance ministers and the ECB, meets tomorrow, Mr Frieden said he wants details and clarity from Athens on how it will implement the budget cuts now, and after Greek elections in April.
Luxembourg, like Germany and other northern European countries, is adamant that Greece stick firmly to the loan conditions. European countries are unwilling to put up any additional money should Greece fall short, he said.
Greece may decide it is better to leave the euro zone than to go through with such severe budget cuts, he said.
A sharply devalued currency would give it more flexibility.
"It might be something which would allow Greece also to get a new start ... to create an economy that can create jobs. This however is not a scenario that I would prefer," he said.
Mr Frieden also urged the United States along with other countries to play a constructive role in strengthening the IMF. which is seeking additional funds to better equip it to handle crisis-struck countries. Extra funding for the IMF is expected to be a major topic at the G20 meeting of finance ministers from major economies next week in Mexico City.
Reuters
