Greece has thrown the eurozone into fresh crisis after the IMF said it would temporarily withdraw funding for Athens following the calling of a snap general election for next month.
MPs failed to elect a president in the final round of voting yesterday, prompting alarm in Athens' financial market and the eurozone over the country's commitment to its bailout terms.
With only 168 MPs in favour, the coalition government's candidate, former EU commissioner Stavros Dimas, fell short by 12 votes, automatically triggering the dissolution of parliament.
Wolfgang Schauble, Germany's finance minister, stoked the looming conflict by warning Greece that eurozone austerity measures were non-negotiable, regardless of the result of the election. "There is no alternative," he said. "If Greece takes another path, it will be difficult. New elections will not change the agreements we have struck with the Greek government. Any new government will have to stick to the agreements made by its predecessor."
Prime Minister Antonis Samaras said after the vote: "We did everything in our power for parliament to elect a president and avoid early elections which are surrounded by serious dangers."
The conservative leader said he would seek a general election on 25 January. "There is no time to waste," he said.
As the news broke, markets in Greece fell by 11pc, although they later closed at 3.9pc, stoked by prospects of fresh political instability and expectations of a left-wing win at the election. All polls suggest that the Syriza party, a Greek acronym for "Radical coalition of the left", is likely to be in a position to seek a coalition government.
Syriza's leadership has repeatedly said they will renegotiate the country's bailout agreement, cancel half of the country's debt pile and put an end to austerity.
"Today is a historic day," Alexis Tsipras, the party's chief said as he walked out of parliament yesterday. "A new future has begun, be optimistic and happy."
Following a six-year recession and a slew of spending cuts, the Greek economy has recently seen growth,but with a quarter of the country's GDP wiped out in just a few years, the marks of austerity are still visible.
Greece has borrowed more than €240bn in loans from the EU and IMF, which have in turn imposed harsh measures and reforms.European officials have recently praised Athens for its fiscal adjustment efforts and fear that having Syriza in power could be a setback.
"A strong commitment to Europe and broad support among the Greek voters and political leaders for the necessary growth-friendly reform process will be essential for Greece to thrive again within the euro area," said European Economic Affairs Commissioner Pierre Moscovici yesterday. Investors fear that a Syriza win could mean a move away from the terms of the bailout deal.
"The problem with Syriza is that their politics aren't clear:will they reach a compromise or clash with international creditors?" asked Nikolaos Skourias, senior economist at Iniohos Advisory Services.
"The issue isn't austerity but Greece's reform drive...markets essentially don't know and they're more scared if Syriza implements its most radical policies."
Among its proposed policies,Syriza has said it will nationalise Greece's banks,restore the minimum wage back to €750 a month and abolish labour reforms.
Greece's political turbulence comes shortly after Premier Samaras negotiated a two-month extension to the bailout.
International inspectors are scheduled to return to Athens in a month's time to wrap up a review set to unlock €7bn worth of loans. Failure to do so could lead to shortfalls.