Europe‘s 30-month effort to save the euro by slashing spending and debt levels risks turning into a crisis of political legitimacy after EU leaders’ strategies collided spectacularly with the wishes of voters in Greece and France.
The impasse was most graphically demonstrated when Germany‘s chancellor, Angela Merkel, insisted Athens must comply with the stringent terms of its €130bn (£100bn) bailout even though more than 60% of the Greek electorate had voted for parties rejecting those terms.
Following a French election campaign in which she strongly backed the loser, Nicolas Sarkozy, and snubbed the president-elect, François Hollande, Merkel stressed her opposition to Hollande’s central campaign pledge: reopening the euro’s new rulebook, or fiscal pact.
“That’s just not on,” she told a Berlin press conference called to address the huge shift from right to left in France.
The first attempt to cobble together a new Greek government collapsed quickly when Antonis Samaras, the centre-right leader, called off negotiations. Greece appears to be on the brink of ungovernability as a result of a messy election triggered by the euro crisis. The stock market suffered its worse fall since 2008, losing as much as 8% of its value before closing 6.7% down. The country’s banking index was 13% lower.
Market analysts shortened the odds against the country’s chances of surviving in the single currency.
“The irresistible force of German austerity has clashed with the immovable object of Greek popular resistance,” said Tristan Cooper, sovereign debt analyst at Fidelity Worldwide Investment. “The eurozone’s weakest link just got weaker. Although it should be no surprise that Greeks are spurning the bitter medicine, the violence of the rejection is a shock. A Greek eurozone exit is now firmly on the cards.”
But Klaus Regling, the German head of the eurozone’s temporary bailout fund, warned that a return to the drachma would “be a catastrophe for Greece”.
In an election that saw the most spectacular collapse of big established parties in modern European democracy, the centre-right New Democracy and the centre-left Pasok mustered just over 30% of the vote between them, compared with almost 80% three years ago.
Samaras, the New Democracy leader, said he had “returned the mandate”, abandoning the attempt to construct a parliamentary majority. “We did whatever was possible,” he said.