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Page last updated at 09:11 GMT, Thursday, 3 November 2011

'It's not just Greece. It's a much deeper problem'


The Greek government appears to be in disarray over the call by the country's Prime Minister George Papandreou for a referendum on whether to support the rescue package put forward by the eurozone.

French and German leaders have warned Greek voters they will not receive any more money until the result of a referendum, which may be held on 4 December, is known and they must decide whether they want to keep the single currency.

Yesterday Mr George Papandreou received unanimous support from his cabinet but some members, including Greece's Finance Minister Evangelos Venizelos have now either publically disagreed with the plan or have distance themselves from it. An emergency cabinet meeting has been called for later today.

Speaking on the programme Harvard economics professor Ken Rogoff said that Greece faced a stark future.

"I do think that they're going to end up defaulting hugely, no matter what. Much more, even than has been discussed. And I think the odds that they will be gone from the euro in a few years are very high and it's simply untenable to be in recession for so long.

He told Today presenter Evan Davis "They have so many problems in the euro. Really, part of the reason they are staying in is they're being bribed not to default because it has all these ramifications outside of Greece."

And Professor Rogoff said that the prospect of Greece leaving the the euro would not be as routine "but countries change their currencies. It's certainly not unthinkable."

In addition, he said eurozone leaders had deeper problems to address, saying "they need to fundamentally change the structure of the euro, change the constitution.

"They need to have much more of a fiscal union, a common regulatory authority, and not 25 years from now, much sooner. I think everybody realises the real problem is if Spanish banks and Italian banks suffer a run, that would really blow the thing up.

"But they're stuck, because they want to say, everything is fine, it's just Greece. It's not just Greece. It's a much deeper problem."

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