Greece will hold new elections after the three major parties and President Karolos Papoulias all failed to form a governing coalition that could agree on how to handle the country’s debt burden.
Citing a spokesman for Papoulias, Reuters reported Tuesday that a caretaker government to see the country through the new vote will be apponted Wednesday.
Meanwhile, unexpectedly strong economic growth in Germany warded off a double-dip recession for the euro zone as a whole, although worries over the continuing efforts to form a government in Greece weighed on markets.
Bloomberg reported Tuesday that the German economy grew 0.5% in the first quarter, reversing a fall of 0.2% in Q4 of 2011 and far outpacing economists’ predictions. The growth was due to a boost in exports to emerging markets, which took up the slack from falling demand in the euro zone, and greater demand domestically as unemployment continues to fall and wages rise.
“With this morning’s numbers, the German economy has not only avoided recession but could have even helped prevent the entire euro zone economy falling into technical recession,” Carsten Brzeski, senior economist at ING Group in Brussels, said in the report. “One thing is at least for sure: the German economy remains the powerhouse of the euro zone economy.”
The news was good for Germany, but could not lift the overall aura of gloom that lay over the euro zone as Greece continued to struggle in the wake of its May 6 election. Rebuffs of austerity from Greek voters resulted in a standoff between parties supporting measures that are prerequisites for the country’s second bailout and those who insist that such measures are too extreme.
Still, Greece itself may have glimpsed its own ray of light: European government officials who met on Monday to discuss the situation hinted that they might give the country more time to meet its budget-slashing targets, set by the troika of the European Union, European Central Bank (ECB) and International Monetary Fund (IMF), so long as politicians manage to form a government that will remain committed to austerity.
That objective is far from the wish of Greek voters, who have courted an exit from the euro zone in their protest against harsh budget cuts that have left the country with record unemployment and reduced pensions and wages. The party most outspoken against the bailout, Syriza, has thus far stood firm in its rejection of any compromises to form a government unless they include an abandonment of the troika’s rules for the bailout. In addition, Syriza’s popularity since the election has grown to the extent that the party could be the big winner if new elections must be called.