Jeff Black and James G. NeugerBloomberg News
BRUSSELS—Greece’s decision to return to the ballot box in the search for a government unleashed a hazardous new phase in Europe’s debt crisis, with German Finance Minister Wolfgang Schaeuble calling the vote a referendum on whether the country stays in the euro.
“If Greece — and this is the will of the great majority — wants to stay in the euro, then they have to accept the conditions,” Schaeuble told reporters at a meeting of European finance ministers in Brussels. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.”
The euro tumbled to a four-month low, European stocks dropped and investors sought the safety of German bonds amid speculation that Greece would be forced out and pull other countries with it, doing untold damage to the European financial system.
As in early 2010 when the first Greek bailout and broader rescue fund were improvised, the way forward will be charted by top political leaders. Their next summit is May 23 in Brussels, the 18th since the debt crisis erupted.
“What’s at stake isn’t just the next Greek government,” German Foreign Minister Guido Westerwelle said in an emailed statement. “What’s at stake is the Greek people’s commitment to Europe and the euro.”
Policy-makers gave an inkling of the behind-the-scenes planning to cope with a Greek departure, which would send shock waves through the European banking system and leave lenders to Greece’s government, businesses and households unsure of getting their money back.
The International Monetary Fund has “to be technically prepared for anything,” IMF managing director Christine Lagarde told France24 television.
The once-taboo issue of a Greek withdrawal or expulsion from the 17-nation currency union burst into the public debate last week.
European Central Bank officials including Patrick Honohan of Ireland and Luc Coene of Belgium weighed the arguments for and against a euro exit, adding to speculation that a currency designed to last forever might start splintering after 13 years.
EU treaties declare the euro “irrevocable” and provide no exit procedure. A December 2009 study by the ECB’s legal department deemed an ouster or departure “so challenging, conceptually, legally and practically, that its likelihood is close to zero.”
Hints from euro finance ministers late Monday that Greece might get more time to meet budget-cut targets failed to encourage the feuding political parties in Athens to put together a unity government.
“Nobody was mentioning an exit of Greece from the euro area,” Luxembourg Prime Minister Jean-Claude Juncker said Monday night after chairing the meeting of euro finance ministers. “I don’t envisage, not even for one second, Greece leaving the euro area.”