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00:10 - Source: CNN

Story highlights

Radical left leader Alexis Tsipras says bailout terms are "null and void"

Politicians fail to make a deal after nine days of talks

Greek debt threatens the stability of Europe's single currency

Markets in Europe fall on the news that no deal has been reached

Athens, Greece CNN  — 

Greece will hold new elections in response to a political stalemate that left the debt-racked country unable to form a government, the office of President Karolos Papoulias said Tuesday.

The announcement comes as the Greek debt crisis threatens the stability of the European Union’s single currency. Papoulias has called for all parties to meet with him Wednesday to set up a caretaker government that will conduct the new vote, his office said.

A default by Greece also could drag down other troubled governments such as Spain and Portugal. Any financial shock of such a magnitude could plunge the region into a deep recession, with ripples being felt across the world.

That leaves Greece facing another vote, probably in mid-June. Meanwhile, the rest of Europe has watched with a nervous eye, fearing Greece could fail to make debt payments as early as next month. And that could force the country out of the euro, the currency used by 17 European Union countries.

Markets across Europe fell slightly on the news of political talks breaking up Tuesday. The Dow was flat in New York in morning trading.

The collapse of Greek talks came as France’s new president, Francois Hollande, met with German Chancellor Angela Merkel hours after his inauguration, and as European finance ministers met in Brussels, Belgium.

What if Greece exits the eurozone?

The European Central Bank and International Monetary Fund have been pumping money into Greece to keep the country in the euro, but they have demanded that the Greek government slash spending to get the funds. When angry voters went to the polls on May 6, they punished politicians who imposed the austerity measures, greatly reducing the number of seats held by the center-right New Democracy party and the Socialist PASOK party.

Radical leftist leader Alexis Tsipras, whose Syriza party reaped the benefits of voter frustration with austerity, urged Greeks on Tuesday to continue resisting “the parties of the bailout.”

“They asked us to leave the country without any hope,” he said, arguing that the May 6 election had left the terms of the bailout “null and void.”

New Democracy leader Antonis Samaras, meanwhile, said his party would “keep fighting for a developing Greece within Europe” and “against those who say they want to get Greece out of Europe.”

His party narrowly came in first in the May 6 elections, but opinion polls since then have suggested that Syriza would finish in first place in a new election.

Analysts have warned that Greece must not remain without a government for long.

“If no government is in place before June when the next installment (of loan money) from the European Union and International Monetary Fund is due, we estimate that Greece will run out of money sometime between the end of June and beginning of July, at which point a return to the drachma would seem inevitable,” Bank of America/Merrill Lynch wrote in a report released Friday.

CNN’s Antonia Mortensen and journalist Elinda Labropoulou contributed to this report.