EU can't afford to drag its feet on Greece

Political uncertainty sparks financial and economic volatility, something Europe cannot afford at present.

But Greece will have to go to the polls again in June to elect a new government. So far Greek political leaders have not been able to form a government that is able to agree on an economic policy that meets the conditions of the bailout package from the European Union (EU) and the International Monetary Fund; and popular demands for an end to its austerity programme. Until the election, global markets will not know if Greece will effectively decide to default on its debts and be forced out of the Eurozone, or if it will back a new government that will be able to meet the bailout terms.

The markets will also be watching the battle of political wills between German Chancellor Angela Merkel and French President Francois Hollande. Merkel believes Europe must cut spending, while Hollande wants to stimulate the economy and let it grow its way out of the crisis.

But whoever wins, the markets will be roiled. Financial markets know that Eurozone countries cannot afford to take on more debt but unsustainable austerity programmes will condemn the single currency area to economic stagnation.

The Bank of England has warned that the biggest obstacle to economic recovery in the UK is that its biggest trading partner "is tearing itself apart with no obvious solution". This is ironic as the UK has been the biggest opponent of the greater fiscal and economic integration which would allow the Eurozone to protect and discipline its members.

But for now, Merkel and Hollande must reach an agreement to either pay the economic and political cost of keeping Greece in the Eurozone, or let it split between those that have the potential to overcome the crisis — and the rest. The sooner the markets know their decision, the better.