Greece’s decision to return to the ballot box in the search for a government unleashed a hazardous new phase in Europe’s debt crisis, with German Finance Minister Wolfgang Schaeuble calling the vote a referendum on whether the country stays in the euro.
Post-election attempts to form a ruling coalition in Athens broke down today after nine days, sending Greeks back to the polls next month with surveys giving the lead to an anti-bailout party that would tear up the conditions attached to 240 billion euros ($307 billion) of aid.
“If Greece -- and this is the will of the great majority -- wants to stay in the euro, then they have to accept the conditions,” Schaeuble told reporters at a meeting of European finance ministers in Brussels. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.”
The euro tumbled to a four-month low, European stocks dropped and investors sought the safety of German bonds amid speculation that Greece would be forced out and pull other countries with it, doing untold damage to the European financial system.
The Greek quagmire raised the tension for a meeting in Berlin tonight between German Chancellor Angela Merkel, the dominant figure in euro crisis management, and Francois Hollande, who took office as French president today in the first power shift to the Socialists in France since 1981.
Hollande, who replaces Nicolas Sarkozy on the French side of the Berlin-Paris tandem, campaigned against the austerity policies that Merkel championed as the solution to the crisis. Now, in his first hours in a government post, he will confront questions about his stance on Greece as more than two years of crisis containment threaten to come unglued.
As in early 2010 when the first Greek bailout and broader rescue fund were improvised, the way forward will be charted by top political leaders. Their next summit is May 23 in Brussels, the 18th since the debt crisis erupted.
“What’s at stake isn’t just the next Greek government,” German Foreign Minister Guido Westerwelle said in an e-mailed statement. “What’s at stake is the Greek people’s commitment to Europe and the euro.”
Policy makers gave an inkling of the behind-the-scenes planning to cope with a Greek departure, which would send shockwaves through the European banking system and leave lenders to Greece’s government, businesses and households unsure of getting their money back.
The International Monetary Fund has “to be technically prepared for anything,” IMF Managing Director Christine Lagarde, who started the crisis as French finance minister, told France24 television.
The once-taboo issue of a Greek withdrawal or expulsion from the 17-nation currency union burst into the public debate last week, starting in Germany, Europe’s biggest economy and the country that invented the euro’s low-debt rules.
European Central Bank officials including Patrick Honohan of Ireland and Luc Coene of Belgium weighed the arguments for and against a euro exit, adding to speculation that a currency designed to last forever might start splintering after 13 years.
EU treaties declare the euro “irrevocable” and provide no exit procedure. A December 2009 study by the ECB’s legal department deemed an ouster or departure “so challenging, conceptually, legally and practically, that its likelihood is close to zero.”
Hints from euro finance ministers late yesterday that Greece might get more time to meet budget-cut targets failed to encourage the feuding political parties in Athens to put together a unity government.
“Nobody was mentioning an exit of Greece from the euro area,” Luxembourg Prime Minister Jean-Claude Juncker said last night after chairing the meeting of euro finance ministers. “I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense, this is propaganda.”
Less than a day later, Alexis Tsipras, head of Greece’s Syriza party, counted on using his second-place finish in the May 6 election as a springboard to winning the Greek revote and shredding the bailout terms.
Greece’s economy has shrunk every year since 2008 and is likely to contract 4.7 percent in 2013, according to EU forecasts. Greek unemployment will reach 19.7 percent in 2012, the second-highest in Europe after Spain, the EU predicted last week.
Tsipras called for a “definitive end” to the bailout and vowed that the new elections will “permanently lock the old powers in the closet.”