- Growing pessimism over future of single currency in current form
- Greek political paralysis as talks continue at 7.30pm to form government
- Communists vow to take to the streets as fears of civil war grow
- Ministers say kalashnikov-wielding gangs could take over
- Worsening crisis and thousands take to streets for mass protests in Spain
- Merkel’s Christian Democrats ‘crushed’ in ‘bellwether’ regional elections
- German chancellor raises possibility of Greek exit for first time
- Greek bank shares plunge by 7%, as European stock markets also fall
PUBLISHED: 02:49 EST, 14 May 2012 | UPDATED: 22:22 EST, 14 May 2012
Tens of billions of pounds were wiped off shares yesterday as Angela Merkel conceded for the first time that Greece could be forced to quit the euro.
The German chancellor suggested that European support for Greece would ‘end’ unless Athens held to the punishing bail-out terms agreed with Brussels and Berlin.
Her warning came amid mounting speculation that Greece could be forced out of the single currency within weeks – plunging both Athens and the single currency into crisis.
Scroll down to see live stock market updates…
Decision time: France’s new President Francois Hollande (left) will meet with German chancellor Angela Merkel (right) tomorrow in what could be a decisive time for the single currency
Radical departure: Angela Merkel and France’s former President Nicolas Sarkozy had similar austere ideas about the future of Europe and were dubbed ‘Merkozy’
Stalemate: Greece’s political parties are struggling to form a coalition. PASOK leader Evangelos Venizelos, New Democracy leader Antonis Samaras, President Karolos Papoulias and Syriza leader Alexis Tsipras
Running out of patience: Angela Merkel in Berlin yesteday
Observers have dubbed the possible departure as the ‘Grexit’ and one Greek minister last night warned the crisis could result in ‘civil war’, with Kalashnikov-toting gangs roaming Athens.
Greek newspaper Imerisia reported that the government has just £1.2billion left in its coffers – enough to continue for only a few days.
Last night there were also rumours of an unofficial ‘grey market’ in the drachma – the old Greek currency – springing up in anticipation of the exit.
Mrs Merkel, who will hold talks on the crisis with new French president Francois Hollande today, said Greece would ‘always’ be a member of the EU.
But she left open the question of Greece’s membership of the single currency, saying only that it would be ‘better’ if it remained within the ailing single currency.
Her comments came as the mounting political turmoil in Greece sent shockwaves through world stock markets. Mr Hollande will fly to Berlin today for talks just hours after being sworn in.
In London, the FTSE-100 index was down by 110 points to its lowest level this year, wiping almost £30billion off the value of Britain’s top companies.
Bank shares took a hammering, with Barclays, Lloyds and Royal Bank of Scotland all down by around 5 per cent.
Markets in the U.S. also fell on the news – the Dow Jones was down 125 points, while the Nasdaq fell 31 points.
Boys in town: Head of Greece’s Left Coalition party Alexis Tsipras (centre) leaves the presidential palace yesterday
The euro fell to its lowest level against the pound for three-and-a-half years.
John Cridland, director general of the CBI, warned that a Greek exit from the eurozone ‘would be like an earthquake happening’ for the British economy.
George Osborne flew to Brussels last night for crisis talks today with EU finance ministers on the future of the euro.
The Chancellor is expected to warn that Europe’s economy is at risk unless Greece is saved.
There were also fresh concerns about Spain after financial markets demanded a punishing 6.2 per cent interest rate on government loans – the highest level this year.
The crisis unfolded as political leaders in Greece gathered in Athens for another round of talks on forming a coalition following this month’s elections.
The talks broke up inconclusively and there will be a further round of negotiations today.
But last night there was widespread speculation that Greece would be forced to hold fresh elections next month after left-wing parties indicated they would boycott any deal that supported the austerity drive agreed with the EU.
Polls suggest that the far-left Syriza party, which has said it will not impose cuts demanded by the eurozone and IMF, could emerge victorious in a fresh poll. Greece’s stock market closed at its lowest level since 1992.
Greek politician Michalis Chrysohoidis predicted the country would be plunged into ‘civil war’ if it quit the euro and readopted the drachma.
The minister for citizen protection in the outgoing government said: ‘If Greece cannot meet its obligations and serve its debt the pain will be great.
‘What do we have to lose more than we have lost already? Our freedom.
‘What will prevail are armed gangs with Kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.’
But Manolis Glezos, a Syriza MP and a veteran of the Second World War resistance, warned Greeks had had enough of cuts imposed on them from outside.
He said: ‘Achtung Frau Merkel. The Greek people want to live free and they don’t want to be under a new occupation from Germany.’