BERLIN — As gridlock among Greece’s political parties made new elections and another month of uncertainty there all but inevitable, European markets dropped significantly Monday amid concerns that Greece’s departure from the euro was near, and right behind it a new round of financial instability for Europe and the outside world.
Yet there were also indications emerging Monday that the latest turmoil could as easily signify the beginning of a new phase of bargaining between Greece and its European lenders as it could a sudden Greek exit from the eurozone.
Despite their hard line in public, German policymakers, including Chancellor Angela Merkel, have begun to hint at some flexibility on the deep and painful budget cuts European officials have demanded. In Greece, despite outrage at the cost of carrying out European demands for austerity, few seem prepared to argue that the costs of leaving the euro — and perhaps severing political ties to Europe — are really bearable.
“Leaving the euro is like a huge earthquake or a nuclear bomb,” said Yannis Stournaras, a well-regarded economist who has advised multiple Greek governments and the Bank of Greece. “There will be no life. Life will start from scratch.” Asked if Greece had any contingency plans for leaving the euro, Stournaras said simply, “No.”
The uncertainty led major stock indexes in Britain, Germany and France to decline by about two percent.
Many political analysts say that unless Greece forms a government at the 11th hour this week, the most likely outcome after a probable new round of elections in June is another round of contentious negotiations over the terms of staying in the eurozone because neither side has a strong incentive to speed up a withdrawal.
They predict, in other words, that Europe will continue to stumble through the crisis for some months to come.
“Nobody can really calculate what the costs are of Greece exiting the euro, and nobody wants to test it,” said Thomas Risse, professor of international politics at the Free University in Berlin.