Massive shock looms over Eurozone

Eurozone tensions rose Thursday after grim news on the economic outlook and as investors sought safety in Germany on growing doubts over Greece's future in the currency union. Shortly after an EU summit failed to produce a remedy, a May survey of eurozone business confidence showed the sharpest monthly fall for nearly three years while the data for Germany was the worst for six months and a survey in France, the poorest for 37 months. European Central Bank President Mario Draghi said the EU was at "a crucial moment in its history" and that the debt crisis has demonstrated the EU's weaknesses. "The process of European integration needs a courageous jump in political imagination to survive," he said, adding that while growth was a priority, "there is no sustainable growth without ordered public accounts." ECB governing council member Ewald Nowotny warned of a "massive shock" of unknown consequences if Greece should stumble back to the drachma and cautioned against taking the possibility too lightly. "I believe the fate of Europe is too important to now carry out thoughtless experiments," Nowotny, an Austrian, said in words aimed squarely at Germany's Bundesbank which claimed a Greek euro exit would be manageable. Amid the strain, the euro slumped to a 22-month dollar low of $1.2516, but Europe's stockmarkets staged a technical bounce after heavy losses on Wednesday despite a slew of bad news on the economy. If Greeks vote in new elections on June 17 for parties against the budget cuts and reforms tied to a second debt rescue, the EU, International Monetary Fund and ECB are expected to cut their financial lifeline. That would in effect force Greece out of the eurozone and could cause incalculable risks for other weaker members, notably Spain. With these unknowns, investors are putting their money into safe-haven German 10-year bonds, pushing the rate of return down to a record low 1.358 percent. However, EU President Herman Van Rompuy, according to an EU source, is now "less pessimistic than a fortnight ago," sensing the Greek vote will produce a clear outcome as people come to terms with the likely disastrous consequences of leaving the eurozone.