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Greece's eurozone exit could cost $1 trillion

world Updated: May 17, 2012 23:13 IST

Governments around the world are making urgent preparations to cope with the fallout of a possible Greek exit from the single European currency. One estimate put the cost to the eurozone of Greece making a disorderly exit from the currency at $1 trillion, 5% of output.

A Greek departure would take Europe into uncharted legal waters. The size of the burden other euro zone states could bear gives them a powerful incentive to keep Greece in the currency club.

The governor of the Bank of England, Sir Mervyn King, warned that Europe was "tearing itself apart".

Officials in the US are also nervously watching the growing crisis: Barack Obama on Wednesday described it as a "headwind" that could threaten the fragile American recovery.

"The core question will be not Greece, but Spain and Italy," World Bank President Robert Zoellick said on Wednesday.

If Greece left the euro zone, the ripple effects could be very damaging and reminiscent of when Lehman Brothers investment bank collapsed in 2008, spreading panic on financial markets.

Reports from Athens that massive sums of money were being spirited out of the country intensified concern in London and other capitals.

British Prime Minister David Cameron has warned that the eurozone "either has to make up or it is looking at a potential breakup", adding that the choice for Europe's leaders cannot be long delayed.

A Greek exit from the euro zone could expose the European Central Bank and the currency bloc it seeks to protect to hundreds of billions of euros in losses, landing Germany and its partners with a crippling bill.

Greeks have withdrawn € 3 billion from the banking system since the inconclusive polls on May 6.

Savers fear Greece leaving the eurozone and returning to the drachma. An aide to the outgoing Prime Minister, Lucas Papademos, said there were "serious fears that the banks were running out of money".