Greek Crisis Could Seriously Hurt Economy

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Jean-Claude Juncker, head of the Eurogroup and prime minister of Luxembourg, said that demands for private creditors to contribute to the latest Greek bailout could be considered a default by ratings agencies such as Moodys who over the weekend downrated Italy‘s credit rating. These financial worries could have serious consequences for the euro.

Mr Juncker, who chairs meetings of the 17 eurozone finance ministers, said Greek bankruptcy could cause serious problems for the Portuguese and Irish economy and also Belgium, because of its high debt burden. “We are playing with fire,” he reportedly said.

Germany’s Chancellor Angela Merkel had earlier demanded that private creditors share part of the Greek burden, but following a meeting with French President Nicolas Sarkozy in Berlin, she softened her stance and both leaders agreed participation in the bailout should be “voluntary”.

The Luxembourg prime minister said a debt restructuring would badly damage Greek banks, which hold a large amount of the country’s debt, about €80 billion, requiring another crisis bailout for these banks. Financial houses in Germany, France and the UK are also major creditors to Greece and any default could lead to a Lehman-style crash in any of these countries.