30 December 2014
Last updated at 05:14
News that Greece faces a snap election on 25 January has been met with international concern, with the radical left scenting victory.
Alexis Tsipras, leader of Syriza, has vowed “austerity will be history” if his left-wing party wins on 25 January.
German Finance Minister Wolfgang Schaeuble warned there was “no alternative” to Greece’s reforms.
Greece’s economy has begun to recover after six years of recession but many Greeks want an end to austerity.
On Monday, Greek MPs rejected the presidential candidate nominated by Prime Minister Antonis Samaras, triggering the snap election.
Stavrov Dimas, a former European commissioner, secured the votes of only 168 MPs, the same number he had won during the second vote last week.
The defeat is regarded as a major setback for eurozone countries that helped bring Greece back from the brink in 2010.
Since then €240bn (£188bn; $290bn) has been spent helping Greece pay off its debts. In return for two major bailouts, the European Union and the International Monetary Fund demanded stringent austerity measures.
Mr Tsipras, whose party has a narrow but steady lead in opinion polls, said the rejection of Mr Dimas was a “historic day for Greek democracy”.
Meanwhile, Prime Minister Samaras, whose centre-right New Democracy party dominates the current ruling coalition, said the public risked finding out “how easy it is to relapse into the deepest and most dramatic crisis” after the new election, the fourth in six years of financial crisis.
Investors fear Mr Tsipras’ left-wing opposition party might act on popular resentment at six years of government austerity by seeking to overhaul the international bailout deal.
In response to the vote, the IMF said talks on completing a review of the bailout, which Greece would need if it were to leave the the EU-IMF programme, would take place only when a new government was in place.
The Athens stock market fell 7% on Monday as news of the vote sank in, with bank shares among the worst affected.
Investors sold off Greek government bonds, pushing bond yields above 9%. The government’s borrowing costs on 10-year bonds rose to 9.7%, in a reminder of the 2010 crisis when 10-year bonds soared above 11%.
The European Central Bank made clear its preference for Greece to continue reforming its finances rather than ending austerity measures, praising its “impressive progress” in stabilising its public finances.
Mr Schaeuble warned that things could become difficult if Greece took a “different path”.
“New elections change nothing about the agreements that the Greek government has entered into,” the eurozone’s most powerful finance minister added. “Any new government must stick to the contractual agreements of its predecessors.”