Greece headed into a month of political uncertainty after power-sharing talks collapsed Tuesday, triggering new elections that could determine whether the country retains its tenuous position in Europe’s currency. Nine tortured days of fruitless talks to build a coalition government fueled increasing doubt that Greece can make enough reforms to prevent the world’s largest currency union from fracturing. “We expect the euro to remain under pressure as a result of this, and pressure on the borrowing costs, the bond yields, of countries like Spain and Italy to persist,” said John Bowler, director of the Economist Intelligence Unit’s Country Risk Service. No date has been set for the elections, but they will have to be held by mid-June – the month in which Greece must make more spending cuts to ensure it meets the terms of its international bailout. A caretaker government will be appointed until then.
The uncertainty has created alarm across the continent, with key leaders fearing that Greece could be forced out of the euro, triggering shock waves throughout the 17-country eurozone. What Greece now needs is reliability and the will to reform” German Foreign Minister Guido Westerwelle said in a statement. “They are the only way back to growth and competitiveness. There is no alternative.”
“We want Greece to remain part of the eurozone,” he said. “The decisions that lie ahead in Athens are not just about the future government of Greece. This is about a commitment by the Greek people to Europe and the euro.” The protracted deadlock and the prospect of an anti-austerity party winning the new vote hammered Europe’s markets on fears that Greece might have to leave the euro.