Greece sets the date for fresh elections next month and will form a caretaker government, after talks aimed at forming a coalition failed.
New elections will be held on 17 June after Greece failed to cobble together a coalition government based on the May 6 elections.
A senior judge was put in charge of an emergency government until a new parliament is formed after the results of the new elections.
The election on 6 May saw leftist opponents of the terms of Greece’s EU/IMF bailout deprive the parties that ran the country for generations of a majority. Polls suggest the radical left are poised to win the re-run on 17 June.
That prospect has shaken faith in Greece’s ability to remain in the single currency and stay solvent, sending the euro and European shares lower, and raising the bond yields that reflect the risk that other European countries will be hurt.
Charles Dallara, chief negotiator for the body representing private sector holders of Greek bonds, said that the damage to the rest of Europe from Greece leaving the euro would be “somewhere between catastrophic and Armageddon”.
David Cameron urged his European counterparts not to “put-off” much-needed action to save the eurozone. Speaking in parliament on Wednesday, he added that the eurozone “either has to make up or it is looking at a potential breakup”.
Greeks themselves have been withdrawing hundreds of millions of euros from banks, apparently afraid of the prospect of rapid devaluation if the country leaves the European single currency, minutes from Greek President Karolos Papoulias’s negotiations with political leaders showed.
The president said that the head of the Central bank, George Provopoulos, had told him that savers withdrew at least 700m euros on Monday.
Read more: Europe prepares for an 'amicable divorce'
“Mr Provopoulos told me there was no panic, but there was great fear that could develop into a panic,” the minutes quoted the president as saying.
“Withdrawals and outflows by 4pm when I called him exceeded 600m euros and reached 700m euros,” he said. “He expects total outflows of about 800m euros.”
Opinion polls show that voters enraged over five years of recession, record unemployment and steep wage cuts are likely to elect a parliament as fragmented as the one they chose on 6 May. But the vote, probably in mid-June, may well tip the balance of power toward leftist parties opposed to the bailout conditions.
Policymakers from European Union states and at the European Central Bank have warned that they would stop sending debt-choked Athens the cash it needs to stay afloat if a new government tears up the bailout.
Many in Greece pin their hopes on newly elected French President Francois Hollande, who campaigned on a pro-growth platform. Socialist Hollande offered some hope for more flexibility towards Greece on Tuesday, saying after his first meeting with German Chancellor Angela Merkel: “I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity so that there is a return to growth in Greece.”
But despite encouraging comments from the conservative German leader about wanting to see growth, differences remain over how far austerity programmes might be relaxed.