From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro.
Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes.
"If Greece decides not to stay in the euro zone, we cannot force Greece," German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels on Wednesday. "They will decide whether to stay in the euro zone or not."
As the paper went to print, Greece’s Communist Party, the fifth-biggest party in parliament, called for new elections to be held as soon as possible. Radical Leftist Alexis Tsipras' meeting with leaders of Greece's mainstream parties on Wednesday to try to form a coalition government remained deadlocked. The effort is seen as doomed after he demanded they first agree to tear up the country's European Union-International Monetary Fund bailout deal. Leader of the biggest party, the New Democracy, Antonis Samaras said in a televised statement that he hoped Tsipras would "come to his senses" before they met for coalition talks. "The country cannot afford to play with fire."
A new election is likely within weeks if the talks remain inconclusive. Speculation is escalating that Greece could be pushed out of Europe's single currency bloc. Conservative New Democracy and Socialist Pasok are the only groups that back the 130-billion euro bailout which saved Greece from bankruptcy.
"Politically speaking, Greece is already out of the euro zone," Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed note. "The only question is about the timing and disorderliness of its exit. The euro fell for the eighth day as it dawned on investors that Greek voters' revolt against austerity, and not the victory of Socialist Francois Hollande in France, was the more significant of the two national elections in the EU on May 6. The euro fell 0.2 per cent to $1.2970, closing in on a three-month low near $1.2955 touched on Monday below the $1.30 to $1.35 range it has traded within for most of the year. In the US, stocks rebounded from session lows on Wednesday as optimism grew that Greece was likely to get a bailout payment approved.
The S&P 500 had hit a two-month low over concerns about political uncertainty in Greece and Spain's weak banks. The Dow Jones industrial average dropped 106.19 points, or 0.82 per cent, to 12,825.90. The Standard & Poor's 500 Index lost 10.45 points, or 0.77 per cent, to 1,353.27. The Nasdaq Composite Index slipped 18.75 points, or 0.64 per cent, to 2,927.51.
European shares fell to a four-month low on Wednesday. The FTSEurofirst 300 index ended down 0.3 per cent at 1,014.46 points. The index pared back some of its earlier losses towards the end of the session, but still finished at its lowest close since January 9 when it ended at 1,008.69 points.
Bonds of at-risk countries have suffered since the balloting. Spain's extra 10-year yield over German levels widened to 458 basis points on Wednesday from 415 at the end of last week. Italy's widened to 412 basis points from 385 over the same timespan. The euro bought $1.2930 at 5 p.m. in Brussels, bringing its eight-day loss to 2.4 percent.
The Greek parties running on an austerity-for-rescue platform took one-third of the vote. Top vote getter Antonis Samaras failed to assemble a government, throwing in the towel after a few hours. Second-place finisher Alexis Tsipras of the Syriza party began coalition talks on Wednesday, handing would-be partners an ultimatum to renounce support for the bailout.
The response outside Athens left little room for maneuver. Schaeuble said that fiddling with the bailout terms would unleash ''catastrophic uncertainty'' in financial markets, and the central bank's verdict came from his former deputy, Joerg Asmussen.
''Greece has to be aware that there is no alternative to the agreed consolidation program if it wants to remain a member of the euro zone,'' Asmussen, who last year moved from the German Finance Ministry to the ECB board, told Handelsblatt in an interview published on Wednesday.
With polls showing roughly the same proportion of Greeks wanting to stay in monetary union while opposing austerity, the haggling over the future government and possible elections next month put the country before two incompatible options.
'Very Painful'
''If 80 percent of Greeks want to stay in the euro, then I think they have to support parties that are in favor of this policy of staying in the euro,'' Luxembourg Foreign Minister Jean Asselborn said at the Brussels conference. Otherwise ''comes the point where Greece unfortunately has squandered the opportunity and that will be very, very painful for the people.''
European treaties label the euro ''irrevocable'' and provide no legal procedure for a country to leave or be thrown out. 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.''
Europe's crisis managers put the odds at zero until last November, when German Chancellor Angela Merkel and French President Nicolas Sarkozy turned a planned Greek referendum on austerity into an in-or-out vote on Greece's euro future.
The referendum was dropped and the Greek leader who mooted it, George Papandreou, was out within days. A nonpartisan government led by former ECB Vice President Lucas Papademos took over. Unlike Italy, which got its own technocratic government at the same time, Greek politicians gambled on early elections.
Re-Vote
With the coalition talks in Athens at risk of stalemating, another vote may come as soon as next month.
Merkel's first finance minister, Peer Steinbrueck, questioned whether a new election would yield a functioning Greek government with a broad-based mandate to deliver the additional savings demanded by international donors.
Greece may be mired in ''a fragile, virtually paralyzed situation for months," Steinbrueck, a potential challenger to Merkel in Germany's 2013 election, said at the Brussels conference.
The next Greek ballot "will be a referendum on continued euro membership," said John Stopford, co-head of fixed income and currency in London at Investec Asset Management, which oversees about $90 billion. "As last week's election shows, it's going to be a close-run thing."
