And with that it's time to close the blog for another day.

Tomorrow François Hollande will be sworn in as the new French president and will then fly to Berlin for talks with German chancellor Angela Merkel, with their differing views on growth and austerity likely to come to the fore.

There are also first-quarter GDP figures for the eurozone which could see it go into recession – analysts reckon GDP may contract for the second quarter running, down 0.2% after a 0.3% drop in the final three months of 2011.

It is also the deadline for a €450m Greek foreign law bond to mature, which increases the financial pressure on the country.

So until, then good evening and thanks, as usual, for all the comments.



And more from ITV business news editor Laura Kuenssberg on traders preparing for the possible return of the drachma:

Traders there reckon 'grey market' in drachmas could get going in a couple of days — Laura Kuenssberg (@ITVLauraK) May 14, 2012

If enough people think drachma may return, it becomes a commodity - traders expect it'd be 1500 drachmas to 1 euro, they joined at 350 to 1 — Laura Kuenssberg (@ITVLauraK) May 14, 2012

Things seem to be gathering their own momentum, in terms of the growing feeling that Greece could indeed exit the eurozone:

SocGen has polled its clients: Will Greece Leave? Yes 74.6% Will the EUR survive as a currency? Yes 95% — Steve Collins (@TradeDesk_Steve) May 14, 2012

Prospects of Greece's political impasse being resolved at tonight's talks in Athens are waning considerably. A senior member of the small Democratic Left party has just told Helena Smith that the formation of a new government is impossible and that elections in June are now inevitable:

"The last thing Greece needs is another round of elections but that is what is going to happened. As a party we have decided that we cannot participate in a government that does not reflect the majority will of Greek society," Dimitris Hadzisokratis, a senior cadre in the Democratic Left party has just told me. "I say this with a heavy heart. We would have preferred otherwise," he said adding that nearly 70% of Greeks had voted for "anti-bailout" parties in the May 6 elections.

This is all getting very real:

Just been to trading floor where they have built drachma into their systems-surreal to see it on screen ready to go in case of 'grexit' — Laura Kuenssberg (@ITVLauraK) May 14, 2012

European stock markets have closed, posting heavy losses after a day in which the eurocrisis and Greece's future of the single currency has dominated.

In the City, the FTSE 100 closed 110 points lower at 5465, a fall of almost 2%. That's its lowest closing level in 2012, and wipes £28.5bn off the value of the index of Britain's biggest listed companies.

Europe's peripheral countries suffered most from the selloff. Here's a round-up:

Italy's FTSE MIB: down 2.7%

Spain's IBEX: down 2.6%

France's CAC down 2.1%

German DAX: down 1.86%



Chris Beauchamp, market analyst at IG Index, said traders had ditched shares in favour of 'safe' government bonds, and the US dollar:

Uncertainty is driving markets at present, with the main fear being that Greece will leave the eurozone.

The FTSE 100 has lost around 8% since mid-March (when the blue-chip index was close to breaking back though 6,000 points). Despite many shares looking cheap, investors remain risk-averse, explained Mike McCudden, head of derivatives at Interactive Investor, who added:

With no real positives to be drawn from the global economic picture whilst the euro zone crisis grows deeper by the day, investors are voting with their feet.

On the subject of US professors giving advice to Greece (see 1.55pm, for Harvard's Richard Parker's revelation that Greece considered exiting the euro a while ago ), our Athens correspondent Helena Smith says eminent US economists have also been accused of exacerbating Greece's economic woes:



The cabal of American academics whose counsel held sway for the two years that US-born George Papandreou was prime minister of Greece have also been accused of giving him ill-advise because they failed to properly understand the inner workings of the EU. Parker, who teaches at Harvard's Kennedy School of government, was among several US economists who had the ear of Papandreou. The Nobel laureate Joseph Stiglitz, chief economist at the World Bank, is another. Parker, a regular visitor to Greece, would often speak to Papandreou several times a day publicly acknowledging that their discussions could go on "for hours" at times of crises [for example when the Papandreou government faced a vote of confidence over unpopular spending cuts and other austerity measures]. In June 2011 he told the Boston based radio station WGBH News: "We think Greece is actually on target to start exiting its recession next year." What has never been publicly acknowledged is the role US academics played in advising Papandreou to take the decision to hold a referendum over the bailout [the second in as many years] Athens finally received after months of tortuous negotiations with the EU last October. Papandreou's bombshell annoucement last November that he would put the hard-won plan to "referendum" sent shockwaves through Europe, markets plummeting and quickly lead to a brash dressing down of the socialist leader by Angela Merkel and Nicolas Sarkozy in Cannes, France. After that, with Europe's power couple losing all trust in him, Papandreou was forced to step aside. And, the rest, as they say, is history.

There is also an irony in the recent talk that Greece's next election would effectively be a referendum on the country's eurozone membership, given how Papandreou's political career was so abruptly ended by this notion.

Austrian finance minister Maria Fekter has taken the hardest line on Greece today, as she arrived in Brussels for today's meeting of eurozone finance ministers.

Fekter told reporters that Greece would simply not receive any more financial help if it didn't meet its commitments. She also warned that Greece could not leave the eurozone, but could leave the European Union. As such, it would have to reapply to join the EU again if it were to exit the single currency.

Is she right? Well..... the Lisbon Treaty does include a mechanism for a country to renounce its membership of the EU - a detail that Europe's neglected to add when they drew up monetary union. Under Lisbon, a country can choose to leave but cannot be forced out. Technically, at least. But as Reuters reported today:

Asked whether it was legally possible under the EU treaties to force Greece out of the 27-country union, one euro zone diplomat replied: "In theory it's not, but it's a bit like the drummer in the band - if the band doesn't like the drummer, there are ways of getting rid of the drummer."

The Athens stock market has closed after a torrid day, in which the main stock index shed 4.56%.

At 584 points, the main Athens index has hit lows not seen since 1992. The old adage about 'buying and holding' shares delivering value over the long term didn't really work out for Greek investors.

Europe's markets remain deep in the red (the Spanish IBEX and Italian FTSE MIB have both lost over 3%). Russia's stock market is not immune either -- its main index has now fallen 20% since its recent peak in 2012, putting it officially in bear market territory.

German chancellor Angela Merkel has warned today that Europe's solidarity with Greece would end abruptly if the country ditched the commitments it made in return for the €130bn aid deal hammered out earlier this year.

Merkel insisted that her appproach to the crisis will not be changed by yesterday's resounding defeat in North Rhine-Westphalia. On the issue of Greek euro-exit, she said:

I don't expect this to happen.

UPDATE: Bloomberg has more details of Merkel's comments. Apparently she was speaking to school children in Berlin, and acknowledged that many ordinary Greeks are now suffering from a crisis they didn't cause:

I believe that people who are absolutely not at fault now have to pay for the mistakes of the past....That's the sad thing.

Wall Street has joined in the global selloff, with the Dow Jones industrial average falling 132 points, or just over 1%, to 12689 at the start of trading.

Today's strengthening of the US dollar has pushed the price of gold down to its lowest level since December 30, at $1,556 per ounce. It's a while since I heard any analysts confidently predicting that gold would shatter the $2,000/oz mark....

A fomer adviser to the Greek government has revealed that serious consideration was made to quitting the euro last year, only to conclude that the move would be too damaging.

Harvard economics professor Richard Parker told Sky News that withdrawing from the single currency was investigated once the current crisis blew up, sayign:

Frankly we discussed everything...All options were on the table. [The question of leaving the euro] was considered seriously.

So why did the research conclude that a euro exit would not work? Apparently, it found that tourism and shipping – two key Greek industries – would not receive enough of a boost to make up for the pain of devaluation (such as massive losses for Greek banks).

More details here.

Many economists have argued that devaluation is Greece's only hope - Shaun Richards did a nice explainer about the process back in February. But it would be hugely problematic (not least because there is no exit).

Banks would have to be shut for days. Euro deposits would be arbitarily converted into (presumably ) drachma, Greek companies would find that domestic revenues would suddenly slump, potentially leaving then unable to meet euro-demoninated debt payments.

And as for the contagion risks..... If it can happen in Greece, it can happen elsewhere, so you might expect a major capital flows out of peripheral countries into the safer core (indeed, the current record low bond yields on German and Dutch sovereign debt suggests this is already happening).

Last September, hedge fund manager John Hempton argued that the only solution was to put troops at the borders of Northern Europe, and ban electronic transfers, while the euro was unceremoniously broken up. He wrote:



There is a precedent. It is not a pretty one. When the Austro-Hungarian empire collapsed there was a single currency over a huge area covering much of what is now Euroland. In this case the rather Germanic Austrians were in charge (or rather were in charge until their empire collapsed). What they did was put troops on all the borders and made it illegal to take cash (or wire cash!) across borders. Then all Austro-Marks in each country was stamped - converted to Drachma for Greece, Marks for Germany, Peseta for Spain or whatever the currencies of the day were [If someone remembers the 1918 border splits better than me they are welcome to say…] In this conception all Spanish debts become Peseta debts. All German debts become Mark debts. All Greek debts become Drachma debts. Unstamped currency goes worthless.

There's more on the on Economic Musings blog.

Fears of an imminent euro exit is causing growing consternation in Athens, with one government minister speaking publicly about the risk of armed gangs toting Kalashnikovs hitting the streets.

Our own Helena Smith reports:



Throughout the day politicians have been talking about the dire effects a euro exit would have on the economy with one senior former official in the outgoing government speaking of "massive food shortages, petrol rations and run on Greek banks."



"If there was a stoppage of payments because we refused to commit to the [EU-IMF] program and Europe cut us loose we would see a drastic drop in the circulation of currency as well," said the official, who requested anonymity as the government is no longer effectively in power. "We would have to freeze deposits. We wouldn't have enough capital to afford imports, rationing would have to be introduced, there would be shortages in medicines and other commodities. They [the EU] wouldn't have to force us out. It would be so difficult we would leave," he told me.



In the last hour fears have also been voiced about the effect a euro exit would have on social order.



Speaking to a local radio station earlier today, Michalis Chrysohoidis, the minister for citizen protection in the outgoing government, chose to be more outspoken. He predicted that Greece would descend into "civil war" it if left the euro zone and reverted to the drachma.



"If Greece cannot meet its obligations and serve its debt the pain will be great," Chrysohoidis, a senior member of the socialist Pasok party, told Flash radio. "What do we have to lose more than we have lost already? Our freedom," he said. "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."

The weakening euro has just hit a new three-and-a-half year low against sterling.

One pound is now worth €1.2501, making one euro worth 79.92p.

The euro had remained surprisingly resilient through much of 2012, before losing value as the Greek crisis intensified. Jane Foley, Rabobank's currency expert, reckons it could well strengthen later this year:

We do not expect the euro to remain on a permanent downward course. If Greece decides to adhere to the terms of its bailout, the euro would likely recover some ground. If politicians manage to steer euro through a Greek exit, the EUR would also recover in time. Even on the unlikely event that politicians fail to prevent an European Monetary Union collapse and the euro becomes the currency of Germany and the core, the EUR would also eventually push sharply higher.

Global financial markets have hit new lows as the trading day has continued. Here's a round-up:

FTSE 100: down 116 points, or 2.1%, at 5458

German DAX: down 136 points, for 2.08%, at 6443

French CAC: down 70 points, or 2.25%, at 3059

Spanish IBEX: down 175 points, or 2.5%, at 6818

Italian FTSE MIB: down 430 points, or 3%, at 13616.

But the worst losses have been seen in Athens today, where the main index has fallen by 5.35% so far today.

Across Europe, financial stocks are the biggest fallers. Miners have also suffered big losses, which reflects fears that the eurozone crisis could derail the global economy.

Breaking news out of Athens from our correspondent Helena Smith:



Greek media are reporting that politicians in Pasok, New Democracy and the small Democrat Left – the three parties which in effect have agreed on the need to form a government with the aim of keeping Greece in the euro zone – are now considering establishing a short-lived coalition to steer the country through the next few months.



Helena continues:

Under this latest scenario, a government would be formed with the aim of running affairs for the next two to three months only. In that time it would deal with the "pressing matters" that would ensure Greece kept on receiving rescue loans from creditors. As reported earlier, Athens is due to receive a bumper €30bn injection of cash in June. But the quid pro quo is that the debt-stricken country also announces €11.5bn in further cuts to reign in public finances.



It should be recalled that the Democratic Left has demanded that Greece steadily "de-link" itself from the controversial conditions it has signed up to in its latest €130bn loan agreement with international creditors. How this will happen remains to be seen.

Helena adds that Wolfgang Schäuble's comments this morning (see 11.03am) that Greece needs help getting 'back to its feet' have raised hopes of a change in attitude by Berlin.

Regarding a coalition governmentt, there were similar rumours on Thursday evening when Pasok leader Evangelos Venizelos called for a unity government. Then, there was some support from the Democratic Left, but hopes of a deal still floundered.

Pasok, New Democracy and Democratic Left do have enough seats for a small majority in the Athens parliament. But as so many voters voted for parties who reject the terms of Greece's financial package, such a coalition could be very unpopular.

Helena Smith has got hold of this morning's statement from Syriza, in which leader Alexis Tsipras indicated he would be prepared to take part in new cross-party talks as long as Golden Dawn were excluded (as mentioned at 10.22am). Tsipras also attacked the "selective discussions" which he claims have been taking place in Athens in recent days.

Helena writes:

Syriza's statement, which spoke of Tsipras's "willingness" to participate in talks attended by all the party leaders - with the exception of the neo fascist Chrysi Avgi-- also demanded that the minutes of Sunday's meeting between the country's leading party heads and president Papoulias be "immediately published so the Greek people can be informed and the mass media stops the rumour mill regarding the positions and intentions of the parties."



"The presidency has a self-evident obligation" to release the minutes, it said.

The European Commission has followed Finland in firing a warning shot towards Athens today, warning that Greece cannot remain in the eurozone if it doesn't stick to the terms of its aid deal.

European Commission spokeswoman Pia Ahrenkilde Hansen told today's news briefing in Brussels that:

We wish Greece will remain in the euro and we hope Greece will remain in the euro... but it must respect its commitments.

Another signal that European leaders are "facing the inevitable" with Greece, or an attempt to put pressure on Greek leaders to somehow patch together a deal?

The escalating eurozone crisis has prompted another dash into 'safe-haven' government bonds.

This has driven down the yields on sovereign bonds from the UK, Germany, Sweden, the Netherlands, Switzerland, Denmark, Finland, and Luxumberg to record lows.

For Britain, this means that the 10-year gilt is trading at a record low yield of just 1.87% (compared to Spain's 6.2%).

Sky News' Ed Conway has tweeted this handy graph showing how UK borrowing costs have tumbled over the last 12 months.

UK govt borrowing rates now below 1.9% for 1st time since creation of capital markets 300yrs ago (10yr = 1.88%) twitter.com/EdConwaySky/st… — Ed Conway (@EdConwaySky) May 14, 2012

Amazing what a financial crisis and €325bn of quantitative easing from the Bank of England can accomplish....

As the fraught negotiations to form a government in Greece continue, the outgoing prime minister Lucas Papademos has weighed in with a stark warning, reports Helena Smith.



It has emerged that Papademos, a former vice president of the European Central Bank, has warned the country's president Carolos Papaoulias that if the political uncertainty continues much longer Greece's near empty coffers may dry up completely – and sooner than thought. The technocratic prime minister, whose outgoing government officially no longer wields power, issued the warning in a note sent to the head of state on Sunday. Described as an SOS by the Greek media, the epistle sounded the alarm, saying Athens faces the danger of default as early as the "beginning of June" because it will be unable to service its foreign debt obligations. Papademos, who secured a second €130bn EU-IMF bailout for Greece after six months of tortuous negotiations, warned that funds could run out faster than expected because foreign lenders had withheld €1bn of the vital €5.2bn aid installment that arrived in Athens last week. The political paralysis of the last few weeks had, he pointed out, drastically reduced the ability of Greece's tax collecting mechanisms to work effectively with the result that state revues had also dropped precipitously. Revenues have fallen from an average €40m per day to less than €25m. Before the political turmoil, Greece had been expecting a "bumper" cash installment of €30bn euro with which it had planned to recapitalize banks (to the tune of €25bn), meet debt repayments and cover public sector pay and pensions. Its troika of creditors at the EU, IMF and ECB have, with increasing force however, made plain that there will be no more aid before Athens gets a government that can show it will commit to the austerity and structural reform program viewed as vital to regaining competitiveness in a country whose economy, in a fifth straight year of recession, is virtually on its knees. Once the government is formed, troika officials will return to the Greek capital to review the financial progress made. Papademos said the political uncertainty was not only hindering headway but putting immense pressure on Greece's banking system and, with it, the nation's cash-starved real economy. Another six weeks of instability following elections on June 17 – their most likely date – will aggravate the situation considerably, the macro-economist wrote in the note. The outgoing finance minister Filippos Sachinidis (although invested with no real power) is expected to address the growing concern over Greece's leaderless state when he attends the Ecofin meeting in Brussels later today. Unlike Belgium which managed to survive without a government for a record 541 days, there is little illusion that Athens could remain rudderless for even a fraction of that time without its dysfunctional public administration collapsing first.

New opinion poll data has been released in Athens.

It found that 66.1% of people want a coalition government to be formed, while 32.4% want new elections.

A narrow majority of people surveyed (53.6%) said they believe Greece should stick with its current economy plan. And on the question of Greece's future in the eurozone, 81.5% said they want the country to stay in the single currency.

(that's via Linda Yueh of Bloomberg)

Wolfgang Schäuble, Germany's finance minister, put his finger on one of the causes of Greece's predicament this morning, telling reporters in Berlin that Greece would choose to devalue, if it had its own currency.

However, clearly Greece can't devalue without leaving the eurozone – and Schäuble went on claim that despite the crisis, Greece is better off staying where it is. He added that he understands Greece is in a:

desperately difficult situation.

Update: Schäuble also told reporters that "We have to get Greece back on its feet," perhaps a sign that Germany might concede some ground over the pace of fiscal reform?

Finland's European Affairs minister, Alexander Stubb, also commented on the Greek crisis, warning that the country cannot stay in eurozone if it rejects its bailout deal (as demanded by some of the parties which made gains in the 6 May election). Stubb said:



I think that is an impossible equation, and I think that in that sense it is an iresponsible statement.

The curious thing about today's stock market selloff is that it comes eight days after the Greek electorate delivered a resounding rejection of the terms of the country's rescue package. European stock markets did fall last Monday (London was closed for a bank holiday), but there was then a recovery on optimism that a unity government could be chiselled out of the mess.

As David Jones, chief market strategist at IG Index, comments:

What little difference a weekend makes. Two days of back-and-forth negotiations in Athens produced much heat but little light, and the world woke up on Monday morning to yet another day without a Greek government. New elections in June now look like a certainty, and the possibility of a Greek exit from the eurozone is being openly discussed in the corridors of power.

European markets remain deep in the red, with the Athens index slumping to a 22 year low (down 4.15% at 586) this morning.

Italy, like Spain, saw its borrowing costs rise as it auctioned sovereign debt this morning.

The Italian treasury agreed to pay a yield of 3.91% in return for finding buyers for three-year bonds, which is the highest rate since January (according to Reuters data). On the upside, Italy did sell the maximum €5.25bn it was aiming for.

Alan McQuaid of Bloxham Stockbrokers, in Dublin, warned that "things are going to get worse rather than better" for Italy in the bond markets, at least in the short term. That would add to the pressure on Mario Monti, Italy's technocratic PM, at a time when opposition to his economic reforms is growing.

Nicholas Spiro of Spiro Sovereign Strategy agreed, saying:

These are critical moments for Italy. The list of concerns is becoming longer, and includes the economy's ability to withstand more austerity, the dearth of foreign buyers at auctions, the increasingly uncertain political environment and, most importantly, the intensification of the Greek crisis. Italy remains extremely vulnerable to a sharp deterioration in sentiment, not least because of its large funding needs in the second-half of this year.

An interesting development in Athem, vie the newswires. Alexis Tsipras, leader of Syriza, has apparently just aked the Greek president to hold a meeting with the leaders of all the main political parties, except Golden Dawn (the neo-Nazi party which won 21 seats in the election eight days ago).

More as we get it

The eurozone economy is shrinking even faster than feared, according to industrial output data just released.

Eurostat reported that industrial production across the region shrank by 0.3% in March, and was 2.2% lower than a year ago. Economists had expected a rise of 0.4%.

The largest year-on-year decreases were seen in Luxembourg (-11.3%), Greece (-8.5%), Spain (-7.5%), Estonia and Finland ( -6.1%) and Italy (-5.8%).

Howard Archer of IHS Global Insight said eurozone manufactuers were suffering from tighter fiscal policy, weak consumer spending, and rising unemployment at home, along with higher oil prices and "relatively muted" global growth.

The official GDP data for the first three months of 2012 will be released on Tuesday morning. It is highly likely to show that the region's economy shrank for the second quarter in a row -- and this weak industrial production data suggests that the downturn could be faster than expected.

Spain's borrowing costs have risen at its auction of short-term debt this morning.

Spain sold €2.9bn of 12 and 18-month bonds, slightly below its maximum target of €3bn. The yield (the interest rate) on the 12-month bonds jumped to 2.985%, from 2.623% at the last auction of this type, while the 18-month bonds sold at a yield of 3.3%, up from 3.11%.

So, Spain can still find buyers for its debt, but only at higher borrowing costs.

Update: Here's some reaction from Nicholas Spiro of Spiro Sovereign Strategy to the auction, and the situation in Spain:

It's turning into a perfect storm: a loss of confidence in the Rajoy government's ability to stop the rot and, perhaps more worryingly, renewed fears of a disorderly Greek exit from the eurozone. In the eyes of investors, Spain has a serious credibility problem. It's not that its failing to tick the right boxes. Rather, it's that it's not ticking them quickly and forcefully enough.

In a sign of the escalating unrest gripping Greece, the country's hardline KKE communist party has announced a major protest demonstration this evening.



Helena Smith reports:

Sensing that the announcement of fresh elections is just a matter of time, the country's unreconstructedly Orthodox communist party is getting ready to hit the streets. As I write, officials are already preparing for what is being described as a mass demonstration against the "destructive" one-way policies of the monopolies of capitalist power [the EU and IMF] in Athens pedio tou Areo park. The rally's motto is: "no expectation, no self-deception, no submission." Protestors have been asked to gather at 8:30 PM local time (6.30pm BST) to hear the party's fiery leader Aleka Papariga (at 67 the widow shows no sign of fading into the back ground) address the crowd.



In an annoucement the party singled out the country's political parties and the Greek Industrialists' association (SEV) for spreading "deceit and lies" in order to ensure further profits for the capitalist oligarchy. The KKE, like Syriza, have long argued that the threat of bankruptcy and chaos that would grip Greece if it defaulted on its debt has been vastly overblown.



"The KKE is directing a rallying cry ... for unremitting battle and readyness to overturn the rotten system," it said. We fiercely denounce this campaign of misinformation and are bent on stepping up our stuggle."

The selloff in Europe is getting worse -- the FTSE 100 is now showing triple-figure losses, down 102 points at 5473.

Lloyds Banking Group, Barclays and Royal Bank of Scotland are all down at least 4%, as bank shares across Europe suffer (several Italian financial stocks are being briedly suspended in Milan after falling sharply).

The dollar is strengthening in the currency markets, as investors dash for the traditional safety of the US currency. That's pushing the euro lower ($1.2864 at pixel time).

Spanish and Italian government debt has fallen in value this morning, driving up their implicit borrowing costs.

The yield (or interest rate) on Spain's 10-year bonds climbed higher to 6.2%, while the Italian equivalent hit 5.8%. This indicates that traders are growing more nervous that the Greek crisis could send dominoes toppling across Europe's preiphery.

Yields in the bond market don't directly affect a country's borrowing costs. However, it's a worrying sign as both Spain and Italy are selling debt today (see here).

Given the dire state of the Spanish banking sector, there are concerns that Spain will need a Greek-style bailout which would involve its bondholders taking losses. That could be one blow that the eurozone could not absorb, as Gary Jenkins of Swordfish Research explains:

The potential outcome would be that investors would immediately withdraw from funding Italy and if Italy goes then the whole Eurozone probably implodes.

Greeks are in brittle and panic-stricken mood this morning, reports Helena Smith from Athens, as the crisis again dominates front pages across Europe.

Helena reports on the latest political development in Greece:

The failure of government-building negotiations here in Athens is now seen as certain. The ability of president Carolos Papoulias to act as a deus ex machina in the unfolding drama appears to have floundered on the resolute refusal of the increasingly assertive Syriza, the radical leftist group that yesterday was revealed by Kappa Research, the polling company, to be the most popular force in the land. The small Democrat Left party, headed by the sensible pro-European former lawyer Fotis Kouvellis, knows that participation in a coalition without Syriza would be the equivalent of electoral suicide. Laos, the far right party, did it for a while by agreeing to cooperate in the outgoing "national salvation" government of technocrat Lucas Papademos and its popularity, as a result, plummeted. On May 6th, it didn't even cross the threshold to make it into Athens' 300-seat parliament. Attacking austerity is what gets votes and in that respect Alexis Tsipras, Syriza's leader, couldn't be doing better. New Democracy and Pasok, the parties now widely branded as 'pro-European' for their support of the unpopular austerity and structural reforms demanded by the EU and IMF in return for aid, say Syriza's cooperation (even if it is just tolerating the government) is essential if the new government is not to be constantly obstructed by anti-austerity strikes and protests. The leaders – without Tsipras it would seem – will meet around the negotiating table again at 7:30 PM local time. Will they, with the chances of a Greek exit from the euro zone higher than at any other time, finally bite the bullet and go for it? In an ideal world, all three have said they would rather plug the power vacuum in Athens with a coalition government than go to elections again in June. For starters, the country can ill afford the estimated €25 million it will cost to hold another poll. But the answer seems to be 'no.' "Everyone recognizes there will not be an agreement tonight," said one well-placed insider who has been busy working the phones. "They are just going through the motions. We are going to go to a new round of elections probably on June 17." Meanwhile, he said, "we should expect movement" later in the day on the issue of the outstanding €450m bond repayment Greece must pay by tomorrow. "This has to be paid otherwise we default. The finance ministry is working on it."

Greek banks shares tumbled this morning when trading began in Athens. Piraeus Bank shed 9.7%, with Alpha bank close behind with a 8.1% drop.

Greek shares had rallied last week on optimism that a unity government might be formed. Those hopes were firmly dashed last night, when Syriza leader Alexis Tsipras (the rising star in Greek politics), refused to let his coalition become "partners in crime" by forming an administration.

As our Athens correspondent Helena Smith explained last night:

The 38-year-old Tsipras has much to be happy – and immovable – about. An opinion poll published on Sunday, seven days after Greece's electoral earthquake, suggested voters were bent on sending further tremors through the political landscape. The survey, conducted by Kappa Research for To Vima, showed support for Syriza climbing from 16.8% to 20.5%.

Spain's renewed indignado protests, now in their third day, appear to have calmed down - with far fewer people in Madrid's Puerta del Sol square overnight compared to the previous day.

Giles Tremlett reports from Madrid:



Police moved in to clear the square of the final 100 or so indignados at about 6am - with no complaints so far of violence. Tomorrow marks the first anniversary of the the day, last May, when spontaneous camp-outs happened in city squares around the country, setting the example for the occupy movements in Wall Street and London. The impact of this year's protest is clearly less than last year.

The protests began on Saturday, when tens of thousands of Spaniards took to the streets in 80 cities in protest at Spain's deep economic problems. On Sunday, 18 people were arrested at Puerta del Sol after refusing to leave the square. But as the picture above shows, many protesters remained in situ last night.

This morning's early stock markets losses (see 8.05am) were partly triggered by the news that even members of the European Central Bank's governing council have started discussing the prospect of a Greek eurozone exit.

Luc Coene, the central bank governor of Belgium, told the Financial Times yesterday that "I guess an amicable divorce – if that was ever needed – would be possible", adding that he'd regret such a break-up.

Ireland's central bank governor, Patrick Honohan, also claimed that a Greek exit from the eurozone would be "rather destabilising" but not disastrous. Honohan told a conference in the Estonian capital Tallinn this weekend that:

It is not necessarily fatal but it is not attractive.

It's very unusual for senior members of the ECB to speculate about a member leaving the euro. Arguably it simply reflects the political reality in Greece today, where voters rejected the terms of the country's aid deal. Or is it a signal to Athens that the rest of the eurozone would be prepared to see Greece cut adrift?

European stock markets have fallen sharply at the start of trading,

In London, the FTSE 100 has shed 70 points, or 1.2%, to 5503. Every share has lost ground, with banking stock and miners leading the fallers.

Trading screens across Europe are flashing red. Here's a round-up:

German's DAX: down 1.1%

French CAC: down 1.5%

Spanish IBEX: down 2.3%

Italy FTSE MIB: down 1.9%

The growing prospect of a disorderly Greek default is alarming investors, explained Michael Hewson of CMC Markets, who commented:

Markets continue to feel the pressure and the stakes continue to rise as what was declared unthinkable a year ago or so now, starts to permeate mainstream thinking in Europe.

Political developments in Germany were also alarming traders, with Angela Merkel suffering electoral losses in North Rhineland Westphalia (details here). Hewson added:

These defeats could weaken her hand in trying to pass the fiscal compact through parliament at a time when her insistence on fiscal discipline or austerity comes under attack from around Europe.

The eurozone crisis will be dominated today by talks in Athens and Brussels, while new industrial production data will show the state of the eurozone economy. Spain and Italy must also test investor confidence with bond sales.

Here's the agenda:

• Eurogroup finance ministers meet in Brussels: from 12.30pm BST / 1.30pm CEST

• Coalition talks resume in Athens: 5.30pm BST / 7.30pm Athens

• Spain sell €2bn-€3bn of 12 and 18-month bonds: from 9.30am BST

• Italy sells €3.5bn-5.25bn of bonds: from 10am BST

• Germany sells €4bn of 6-month bonds

Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

It's the start of a crucial week. The political crisis in Greece has intensified over the weekend, after attempts to form a unity coalition floundered. Leaders are due to meet again today, but without leftist coalition Syriza -- which yesterday refused to join a multi-party government that would stick to Greece's austerity plans.

If a coalition can't be formed (as appears likely), Greece heads for new elections in a few weeks.

The talk in the financial markets today is that a Greek exit from the eurozone is now a question of when, rather than if. The prospect of a disorderly default is likely to hit markets again today.

The political vacuum in Greece will dominate the agenda in Brussels later today, where finance ministers from across the eurogroup are meeting.