Europe was gripped by fresh turmoil today with growing fears that Greece will crash out of the single currency.
Political chaos in Athens and worries over Franco-German relations after François Hollande’s victory in the French presidential elections saw markets dip this morning. Dark clouds hung over the eurozone as:
The far-Left Syriza group in Greece sought to form a coalition after two thirds of Greeks voted against parties backing German-enforced austerity measures.
France and Germany were under intense pressure to agree a deal combining austerity with a greater focus on growth to avoid a catastrophic split at the heart of Europe.
Spain was poised to do a U-turn and plough billions more into propping up its banking sector.
Italian voters in local elections turned their back on pro-austerity parties and the centre-Right People of Liberty party, which supports Mario Monti’s government, threatened to oppose the eurozone pact to rescue the single currency.
Mr Hollande took a swipe at the UK, saying: “The British have been particularly timid about the question of financial regulation and only concerned by the interests of the City.”
The Irish government refused to delay a referendum, planned for May 31, on the fiscal pact with No campaigners calling for a vote against “writing austerity into law”.
In Athens, Greece’s New Democracy leader Antonis Samaris, whose party topped the poll, failed yesterday to put together a coalition, leaving it to the Left-wing parties to try to form a government, which would be opposed to the country’s EU/IMF bailout.
The Greek stock market also fell further today, down 3.5 per cent shortly after 2pm, after Far Left leader Alexis Tsipras, who is seeking to form a coalition, said Greece’s IMF/EU austerity deal was “null and void”.
Investors were flocking to safe havens including Britain where the yield on long-term gilts fell below two per cent.
Many experts, though, doubt whether far-Left leader Alexis Tsipras can cobble together a coalition as the party which comes first gets a 50-seat bonus in Parliament.
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Trader Justin Haque said: “People are looking for the next worry, which is that the Greeks will talk for six hours and come to no agreement.”
No party won more than 20 per cent at the polls and the deadlock would mean a fresh election and cast doubts on £10 billion of new austerity cuts due in June under the huge EU/IMF bail-out plan for Greece.
Most Greeks still want to remain in the euro but are opposed to the Berlin-driven austerity measures.
Chancellor Angela Merkel has warned that the fiscal pact, which David Cameron refused to sign, cannot be re-opened, despite Mr Hollande calling for a renegotiation during his presidential campaign. Mr Cameron is expected to meet Mr Hollande at the G8 summit in America next week.
European experts expect France and Germany to reach a deal under which a new “growth pact” linked to the original agreement is established.
However, business chiefs are increasingly alarmed at the risk of the single currency splitting as a new anti-austerity mood sweeps Europe. Lord Wolfson, a Tory peer and chief executive of Next, said: “Some countries might decide to abandon austerity themselves and with that we would have an implosion, the end of the euro.”
