Greece’s president met little enthusiasm from political leaders summoned to a final round of talks on Monday to avert a new election, reinforcing fears the country was firmly on the path to bankruptcy and an exit from the euro zone.
European shares slid and Spanish and Italian bond yields rose as the political deadlock threatened to reignite the euro zone debt crisis. Greek banking stocks tumbled 7 percent.
Angela Merkel’s ruling conservatives suffered a humiliating defeat in key elections in Germany’s most populous state yesterday when voters rejected her party’s austerity policies and handed a resounding victory to her pro-growth Social Democratic Party opponents.
Ms Merkel’s Christian Democrats were shell-shocked by the devastating result they returned in the poll in North Rhine Westphalia, which has a total population of 18 million. Exit polls showed that they secured a mere 25.5 per cent of the vote – their worst performance ever in the state.
The euro finance ministers, known collectively as the eurogroup, will convene in Brussels at 5 p.m. local time.
The European Commission isn’t considering easing the terms of the joint bailout for Greece from the EU and the International Monetary Fund, EU spokesman Amadeu Altafaj said, denying a report by Athens-based Real News.
“I’m not aware of any discussions within the commission to grant new provisions, new concessions in the program” for Greece, Altafaj said by phone yesterday.
A Greek departure from the euro could trigger a default- inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.
Amid all the hoopla over the London Whale, the U.S. stock selloff, and the Facebook IPO, you may have missed this: The Germans are talking about “accepting” higher inflation.
John Mauldin didn’t miss it, and what it means, he said in his weekly newsletter, is one thing: The Germans have accepted the notion that the only institution with the wherewithal to save the eurozone is the European Central Bank, and the only way possible for the ECB to do it is by printing euros. Trillions and trillions of euros.
This is a major about face for the historically inflation-averse Germans, for whom the hyperinflation and disaster of the Weimar Republic is still an open wound, Mauldin noted. But there’s no other way around it, because from Greece to Portugal to Ireland to Spain to Italy, there isn’t one government with the capability to overcome what are now, or are quickly becoming, crippling debt burdens.