New Eurozone Crisis Amid Austerity Fight as Spain Prepares Bail-out

A new eurozone crisis loomed Tuesday with Greece teetering on political chaos, France colliding with Germany on austerity and Spain readying new bank bailouts.

Leaders of two left wing Greek parties made an attempt to arrange a new "national salvation government" coalition Tuesday after their previous try failed Monday. Photo: journalforeignrelations/Flickr

According to results, no party won a majority in Sunday’s general election, which became a referendum against austerity measures imposed by international lenders.

Technocrat caretaker Prime Minister Lucas Papademos is due to leave office next week, and he will be replaced by another caretaker administration before the repeat election amid a fast-deteriorating economy that analysts increasingly fear will go bankrupt in August if it reneges on earlier-made promises tied to deep spending cuts and higher taxes to secure a bailout.

UPI News reports that Greece’s creditors will reportedly decide in August whether to release another installment of financial aid in its $171 billion bailout.

Meanwhile, Europe’s 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, says The Guardian.

The deadlock was most graphically demonstrated after 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.

During recent French election campaign she strongly backed Nicolas Sarkozy and snubbed his opponent, François Hollande. Merkel higlighted her opposition to Hollande’s central campaign pledge: reopening the euro’s new rulebook, or fiscal pact.

“That’s just not on,” the chancellor told a Berlin press conference called to address the huge shift from right to left in France.

The first attempt to form a new Greek government failed after 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 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.”

The big winner, Syriza, a coalition of leftist radicals that came second, squarely blamed Merkel in current situation. “European leaders and especially Merkel have to understand that austerity policies have suffered defeat,” said its young leader, Alexis Tsipras.

Which is more, yesterday the former president of Latvia, Vaira Vike-Freiberga, announced that the EU was becoming both dominated and neglected by Germany.

“Is the Europe that is emerging from the euro crisis a German one? During the euro crisis, power in the EU seems to have shifted towards one national capital in particular, Berlin,” she said.

“Germany, it seems, is becoming a ‘geo-economic power’ driven by the needs of its export sector. By using economic means to pursue its foreign-policy ends, Germany is gradually turning its back on its European partners.”

The euro crisis is spreading again in Spain as Prime Minister Mariano Rajoy announced the country was ready to inject billions in public money to bail out No. 3 Spanish bank Bankia SA and possibly other ailing banks wrestling with a housing-market collapse.

The country which is reported to have the possibility to save $40 million a year by docking an aircraft carrier – is trying to cope with an austerity drive that has contracted the economy 0.3 percent each of the past two quarters and pushed the jobless rate to nearly 25 percent of the workforce.

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