Sergio Perez / Reuters
A trader reacts on the floor at the Madrid Bourse. European shares sank to new 2012 lows in a broad-based sell-off as concern over contagion from Greece gripped investors.
As Greece teeters on the edge of financial collapse, European officials have a new task before them: preventing the financial turmoil from spreading across the continent, across the Atlantic and around the rest of the world.
The fear is that Greece’s financial turmoil could spread beyond its borders despite European efforts to create a “financial firewall” to contain it.
“The spillover effects, the chain of consequences are very difficult to assess,” said International Monetary Fund President Christine Lagarde on Wednesday. “We can certainly assume that it would be quite messy.”
Lagarde, whose agency has been among those providing financial support for Greece, said the IMF has begun making “technical” preparations for Greece’s possible departure from Europe’s common currency, the euro.
Greece’s exit from the eurozone seems more likely every day. A two-year standoff deepened this week between Greek voters, 1 in 5 of whom are unemployed, and European officials, led by German Chancellor Angel Merkel, who are insisting on continued “austerity” by the Greek government in exchange for a financial lifeline.
After deep budget cuts sent the Greek economy into a painful recession, voters ousted the former government that agreed to measures that would inflict even more pain on Greece’s banks, businesses and households.
Merkel and Lagarde remain steadfast in their insistence that continued financial aid depends on whether Athens adheres to tight-fisted spending policies.
"Nobody is going to give the Greeks a penny unless they put a government in place which implements austerity,” said David Roche, president of Independent Strategy, a London-based investment research firm.
Depositors have already begun pulling their euros out of Greek banks as the odds rise that Athens may soon exit the common currency.
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