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World Bank on Greece crisis: Spain and Italy could be next

Questions are growing over whether Greece can survive financially until new elections on June 17. Jonathan Rugman reports for NBC News' partner in Britain, Channel 4 News.

Spain and Italy will be the next victims of the European financial crisis if Greece crashes out of the euro currency zone, the head of the World Bank has warned.

Fears that Athens may be forced to issue registered warrants or return to its former currency, the drachma, have rattled global markets and alarmed world leaders, with Greece set to figure high on the agenda at the G8 summit in Camp David later this week.

A cabinet of professors and diplomats was sworn in Thursday, to steer the debt-ridden eurozone state into repeat elections on 17 June, the BBC reported.

Europe, US and the world brace for messy impact from Greece

The risk of the contagion spreading to bigger European economies that are vulnerable due to high debt or weak banks has sent stocks and commodities tumbling, and has driven Europe's single currency toward its lowest levels this year.

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

Reuters reported that a Greek exit from the eurozone would have effects reminiscent of the collapse of the Lehman Brothers investment bank collapsed in 2008, which spread panic on global financial markets, and said that it could expose other European nations to hundreds of billions of euros in losses.

Recession-hit Spain, which faces deep concerns over the health of its banks, is set to see its medium-term borrowing costs rise sharply at an auction on Thursday of 1.5-2.5 billion euros of bonds expiring in 2015 and 2016.

Greeks withdraw $894 million in a day: Is this beginning of a run on banks?

Meanwhile International Monetary Fund chief Christine Lagarde warned of "extremely expensive" consequences were Greece to leave the eurozone, a once taboo possibility that European leaders have now begun to discuss openly.

Echoing Zoellick's comments, Lagarde told Dutch television that a Greek departure from the euro "would be extremely expensive and hard, and not just for Greece."

Greeks have withdrawn hundreds of millions of euros from banks in recent days as fears grow that the country might be forced out of the eurozone, although there has been no sign of a run on individual Athens bank branches.

In March, Greece agreed to extensive budget cuts as part of the conditions of a $165 billion bailout package organized by the European Union and the IMF.

European shares edged lower at the start of trading on Thursday, having closed down during the last three sessions.

The BBC said Panagiotis Pikrammenos, the senior judge who has taken over as prime minister of Greece, views the cabinet's sole task as leading the country into the poll in the hope of producing a more conclusive result.

On May 6, voters punished the two mainstream parties that had imposed austerity measures under the terms of international bailout deals.

Reuters contributed to this report.

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