Greece wants to stay in eurozone but financial markets remain on guard

by Larry Elliott

Guardian
February 20, 2012

The Bank of Greece chose its moment well and apparently without irony. Late last week, with a €130bn bailout hanging in the balance, it announced that Greeks would have only until 1 March to exchange their old pre-monetary union drachmas for euros. Surely, the wags in the financial markets said, anybody with drachmas stuffed under the mattress for the past decade should hang on to them on the grounds that they might soon be useful again?

For all Athens' loathing of the austerity being imposed by the EU, the European Central Bank and the International Monetary Fund, most of the population wants to remain in the single currency. Even so, the chances of Greece defaulting and exiting the euro are high. Departure is unlikely to be this month or next, and – if it happens at all – may be delayed until after the German elections next year.

Rising share prices and a stronger euro suggest the financial markets are confident enough has been done to isolate Greece, even if the country is pretty much bust. Policymakers, by contrast, have become more cautious about claiming success; for them the events of the past two years have been as daunting as the labours of Hercules.

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