Greeks are voting with their wallets and pulling euros out of the banks in fear that their country may leave the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union.
Central banking sources said the European Central Bank has stopped lending to some Greek banks because they had not been successfully recapitalised. The sources did not name the banks but said they have to go to the Bank of Greece for emergency liquidity assistance. The ECB declined to comment.
As financial markets shuddered over the deepening turmoil in Athens today, a chorus of sceptical politicians and central bankers from London to Ottawa predicted the euro zone could fall apart soon unless European governments act more decisively to save the currency.
Greek president Karolos Papoulias warned political leaders that citizens were withdrawing their money due to "great fear that could develop into panic" at the risk of a debt default and exit from the euro area, according to minutes of their meetings posted on the presidency's website.
The president, who tried in vain to broker a national unity government, appointed a senior judge, Panagiotis Pikrammenos, as caretaker prime minister today until a second general election in just over a month is held on June 17th.
The failure of Mr Papoulias' talks to avert a repeat election sent judders around financial markets, hitting global share prices and other riskier assets.
Investors fled to the US dollar and safe-haven German bonds while the euro lost almost a cent to fall to a four-month low below $1.27. Spanish and Italian bond yields spiked while a key index of European shares fell to its lowest level this year.
German chancellor Angela Merkel and new French president François Hollande sought to quell talk of a possible Greek departure from the euro zone after their first meeting yesterday evening, which focused on ways out of the 17-nation currency area's debt crisis.
"We agreed that we want Greece to stay in the euro," Ms Merkel told a joint news conference in Berlin, adding that Athens must respect the conditions set in a second international bailout agreement signed in March.
Nearly two thirds of Greeks voted on May 6 for parties of the radical left and far right which oppose the terms of the EU-IMF assistance programme, which has imposed steep wage and pension cuts, deepening a four-year recession.
Policymakers from European Union states and the European Central Bank have warned they would stop sending Athens the cash it needs to stay afloat if a new government tears up the plan.
European Commission chief Jose Manuel Barroso said the Greek people must now make a fully informed decision understanding the consequences for their country's future.
"The ultimate resolve to stay in the euro area must come from Greece itself," Mr Barroso told a news conference.
But many Greek voters believe they can stay in the euro without abiding by the conditions imposed to obtain the bailouts, as promised by Alexis Tsipras, the charismatic 37-year-old leader of the surging leftist Syriza party.
A second opinion poll showed that Syriza, which opposes the austerity conditions attached to the assistance programme, is consolidating gains and is on track to become the biggest group in parliament in a re-run vote, pulling ahead of mainstream pro-bailout centre-left and centre-right parties.
The determination to keep Greece in the euro spelled out by Ms Merkel and Mr Hollande may be undermined by sniping from several EU finance ministers, including Germany's own Wolfgang Schaeuble, who have publicly envisaged a possible Greek exit.
Ms Merkel's office complained to Austria after finance minister Maria Fekter suggested this week that Greece could be thrown out of the EU as a result of its economic crisis, the newspaper Oesterreich reported.
International Monetary Fund chief Christine Lagarde said yesterday Greece would either have to be given more time and money to meet its debt reduction targets or else euro zone countries would have to begin planning for its exit.
Spanish prime minister Mariano Rajoy voiced the alarm of a country that could be next in the firing line if Greece left.
"I don't want Greece to exit the euro," he told parliament in Madrid, as Spain's risk premium over benchmark German 10-year bonds rose to more than 5 percentage points, a euro era high.
"I believe it would be a major error, it would be bad news and I believe we have to guarantee the sustainability of public debt and then all of us comply with our commitments, which is what we are doing in Spain, what Italy is trying to do and what all the other countries are also trying to do."
In a blow to Mr Rajoy's efforts to clean up Spain's debt-laden financial sector, shares in recently nationalised lender Bankia tumbled 10 per cent today after it delayed first quarter results, raising fears that the government will have to inject more cash.
Bankia lies at the core of concerns about Spanish banks' problems after a 2008 property crash. Many analysts believe Madrid or the EU will have to inject funds to avert a collapse of the financial system, worsening the euro zone debt crisis.
Italian prime minister Mario Monti, whose heavily indebted country is also in markets' sights despite economic reforms praised by the IMF, said that US president Barack Obama was seriously concerned about the euro zone situation, which will be on the agenda of a G8 summit in Camp David at the weekend.
Mr Obama spoke to Mr Monti yesterday and the White House said they agreed on the need to intensify efforts to revive economic growth and job creation in Europe, apparently siding with Mr Hollande in his drive to temper German-led austerity policies.
Among the sceptical chorus, Canadian finance minister Jim Flaherty, a frequent scourge of the euro zone, said this week that Europeans should abandon the single currency if they were not willing to do more to assist member states in trouble.
"They have to do the right thing, use some of their taxpayers' money to bail out some of the weaker members of the euro zone - or start moving away from the euro zone and just say this was an experiment that has not worked," he told CTV television.
Reuters