Merkel, in fact, is battling resistance on two fronts to her vision of cuts as the best and only cure for what ails Europe, raising fresh questions about the region’s ability to quell a crisis that has gone on for 21
2 years. Francois Hollande — France’s first Socialist president in 17 years — flew from Paris to Berlin on his first day at work Tuesday with a pledge to “renegotiate” a new response to the crisis focusing on economic growth and sounding a more conciliatory note on Greece.
Underscoring rising fears of a messy breakup of the region’s currency union, the euro fell Tuesday while worried investors again drove borrowing costs precariously high for troubled but far larger Italy and Spain. If Greece were to exit the euro zone, the fallout could send those costs to unsustainable levels, raising the prospects of even bigger bailouts to prevent a further rupture of the euro zone.
The fear intensified as Greece, where Europe’s debt crisis began, appeared closer to a moment of truth. The nation’s May 6 elections pummeled political parties that approved the rescue deal, and after 10 days of wrangling, leaders failed Tuesday to forge a unity government that would have worked to forestall collapse and keep Greece in the euro zone.
Instead, a nation in danger of running out of cash to operate the government — and where fearful residents in recent days have been rapidly withdrawing more of their savings from Greek banks — faces uncertain new elections next month. Opinion surveys have shown that Syriza, a party that wants to break the terms of Greece’s bailout deal and that came in a surprise second in the last vote, is polling in first place.
“The Greek people, after the May 6 elections, have declared the bailout null and void,” Syriza leader Alexis Tsipras said after the collapse of talks Tuesday. “We have made the decision not to betray people’s expectations."
European finance ministers — whose taxpayers have largely funded the Greek bailout — were quick to push back Tuesday. Given the potential shock waves if Greece is forced to leave the euro zone, there have been suggestions in recent days that European officials might show more lenience with Athens.
But German Finance Minister Wolfgang Schaeuble played down any shift after a meeting with his peers in Brussels, saying the Greek bailout terms were not up for renegotiation. He added, though, that unspecified bilateral deals might be reached with Athens, such as having the European Union invest in infrastructure projects in Greece to help the country’s economy.