German Chancellor Angela Merkel, seen as the main driving force behind the eurozone’s austerity program, was quick to reject any suggestions for a change of course.
“The fiscal compact is not negotiable,” she said in a press conference this morning, referring to the treaty that was signed by most EU members in March and which obliges member states to have a balanced budget. The Chancellor conceded that growth in Europe was necessary, but added that it should not come at the cost of new debts.
Financial markets reacted negatively to the prospect of renewed political upheaval in the eurozone. European and Asian shares sank Monday morning and US index futures dropped too. The MSCI All-Country World Index slid 0.9 percent. The Stoxx Europe 600 Index lost 0.5 percent and Standard & Poor’s 500 Index futures fell 0.9 percent. The euro dropped to a three-month low of $1.3006.
The main source of concern could be Greece, according to Mr. Papakostas. Pasok and New Democracy, the two parties which took turns governing the country over the past four decades, lost half of their votes. At almost 17 percent, a coalition of radical left parties, Syriza, became the second-strongest force in Greek politics, after New Democracy, which, after some initial resistance, backed the EU austerity plan for the country.