Schulz warns against Greek euro exit

Greece's economy would "collapse within days" if it left the eurozone, the president of the European Parliament has warned, at the start of a visit to Athens to meet political and business leaders as well as civil society groups.

Martin Schulz's comments came the day after Fitch rating agency slashed Greece's credit score amid ongoing speculation about its future in the single currency bloc, ahead of re-run elections in June.

Cutting Greece's rating to CCC from B-, Fitch said the inconclusive results of the May 6 elections – which saw political parties fail to form a coalition government – showed a lack of support in Greek society for the European Union and International Monetary Fund bail-out. It said that an exit from the eurozone was "probable" if the second vote does not yield a government that backs the austerity programme.

At the same time, the decision by fellow rating agency Moody's to downgrade 16 Spanish banks, including the country's biggest lenders Santander and BBVA, also spooked global markets, which suffered heavy losses overnight and this morning. Moody's said it took the action because of Spain's renewed recession, its ongoing property crisis and the "reduced creditworthiness" of the Spanish government. Nevertheless many of the banks' share prices recovered through the first part of today's session.

Schulz said he was making his trip to Athens to "talk with and listen to the Greeks". He noted via his Twitter account that "in Europe we talk a lot about Greece, but not enough with the Greeks". Discussing the possibility of Greece being forced out of the eurozone, Schulz told German radio: "I am not saying this option does not exist, but I consider it very risky." He predicted that the Greek economy would "collapse within days" if it left the single currency, forcing European countries to supply billions of euros in emergency aid.

"Many people believe that it would be the end of a negative cycle but for me it would be the beginning of an even more negative cycle," the German socialist said. During his visit he is due to meet Greece's president, Karolos Papoulias, as well as the leaders of the political parties that failed to form a coalition government following the May 6 elections, amid a dispute over whether they should commit to the terms of the EU and IMF bail-out.

With new elections set to take place on June 17, a fresh poll indicated that Greeks might be returning to the two mainstream political parties that broadly support the bail-out. The conservative New Democracy party stood first, ahead of the radical left group Syriza, which has led surveys since the original elections.

The strong showings of Syriza – which wants to abandon the austerity programme but stay in the eurozone – have prompted warnings from eurozone leaders that Greece must stick to its pledges or face its bail-out funds being cut off, almost certainly leading to an exit from the eurozone. The tactic might be working, with the latest poll suggesting that New Democracy and the socialist Pasok party, the two pro bail-out parties, could together win enough seats to form a workable coalition government.

There was some encouragement for Greece today from new French prime minister Jean-Marc Ayrault, who said creating growth in the country should be Europe's focus. Speaking to France Inter radio, the prime minister, appointed by newly-elected president Francois Hollande, said: "Greece needs to revive its economy. There are unused structural funds and what's needed now is help to secure that revival alongside putting its accounts back into shape." He admitted that Europe had "waited too long" before helping Greece. Yesterday France's new government said all its ministers would take a 30 per cent pay cut to show that it is not immune from budget cuts.

However, EU commissioner Karel De Gucht admitted in an interview with the Belgian newspaper De Standaard that plans were being drawn up to limit the damage of a Greek exit. "A year and a half ago there may have been the danger of a domino effect," he said. "But today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn't make it." A commission spokesman, Oliver Bailly, later insisted that the EU executive had "no plan" for a Greek exit.

Meanwhile Schulz, as well as holding talks with Greece's top politicians, will meet representatives of small and medium sized enterprises, the leaders of a pensioners' association, and a group of students. On Twitter recently Schulz expressed his feelings about the eurozone's diverging economies, and high unemployment among young people in struggling countries, writing: "As German, father of German children: I feel ashamed to think their life will be easier than that of Spaniards of the same age in same in Europe."

The eurozone crisis will be a key talking point for world leaders at the G8 summit in the United States today and tomorrow, with US president Barack Obama calling on Europe to do more to spur growth in the region.