Westerwelle and Merkel
Westerwelle and Merkel Reuters

With the collapse of coalition talks to form a Greek government, we have been plunged headlong into a game of chicken between Greece and the EU.

Not only is there no mandate for a Greek government to implement the austerity measures; there is simply no government. Greece will now have to go to the polls again in another month, with the public opinion surveys indicating that the anti-austerity thrust will only redouble in force in the repeat election.

Don't worry, say opponents of austerity, the Europeans won't risk our leaving the Eurozone.

This poses a dilemma for the European Union. The Germans have laready stated that solidarity is a two-way street and unless the Greeks are willing to help themselves by taking the proper dose of their austerity medicine, they will not receive help in repaying the country's sovereign debt.

Foreign Minister Guido Westerwelle told the Bundestag lower chamber: "We want to help and we will help Greece, but Greece has to be ready to accept help. If Greece strays from the agreed reform path, then the payment of further aid won't be possible."

The EU now claims that it will be able to weather a Greek default and its exit from the Eurozone, just as it has successfully implemented bailouts in Ireland and Portugal and has built a firewall to take on other contingencies.

Unfortunately, the ratings agencies do not take such a sanguine approach and the Fitch rating agency has already announced that it will give a negative rating to all the other members of the Eurozone following a Greek exit.

The European Central Bank has acquired €40 billion of Greek debt in the event of a default; most of that money would have to be written off.

Still, the influential German magazine Der Spiegel, associated with the center-left (more sympathetic to the Greeks than the government), announced on its cover that it had changed its mind and now felt that Greece and the Eurozone would be best off if Greece left the euro.

Within the European Central Bank itself there are now voices calling for an amicable divorce rather than an attempt to keep Greece part of the Eurozone at all costs.