ATHENS, Greece — Greece headed into a new 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 led to increasing doubts 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 by the middle of June, the month in which Greece must make more spending cuts to ensure that 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. “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.
Main European markets lost earlier gains, with the FTSE 100 index of leading shares shedding 0.6 percent, Germany’s DAX down 1 percent and the CAC-40 in France 0.7 percent.
Greek shares were clobbered further after days of heavy losses, with the Athens stock market initially diving 4.86 percent before a slight rally to close 3.6 percent down. The euro also fell, trading 0.3 percent lower at $1.2794.
About 700 million euros ($898 million) in deposits have flown out of Greek banks since the May 6 elections, President Karolos Papoulias told party leaders after being briefed by the central bank governor, George Provopoulos.
“The situation in the banks is very difficult,” Papoulias said, according to a transcript of the meeting released by his office. “Mr. Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic.”
Socialist party leader and former finance minister Evangelos Venizelos said the country is “unfortunately” headed for another round of elections, “because certain people coldly put their short-term party interests above the national interest.”
Papoulias will convene a new meeting of party leaders today to appoint a caretaker government until the election.