Governors of three central banks have openly raised the option of a Greek exit.

“Technically it could be managed,” said Patrick Honohan, the Irish governor. “It is not necessarily fatal, but it is not attractive.”

Even Jose Manuel Barroso, the usually cautious president of the European Commission, had a stark warning for the Greeks: “If a member of a club does not respect the rules of the club, it’s better not to remain in the club,” he told Italy’s Tg24 TV last week.

In the corridors of the European Union’s headquarters the fear now is not only that Greece could be forced out, but that the resultant chaos would spread quickly to Portugal, Ireland, Spain and beyond, causing a collapse of the euro currency and a generalized economic meltdown.

The prospect has more than just Europe worried. For all its problems, the eurozone’s $13.6 trillion economy remains the world’s second largest. Its collapse would risk a global economic earthquake making Lehman Brothers look like a mild tremor.

“This is not just about Europe, there is a possibility that it may spread to the global economy,” Japanese Prime Minister Yoshihiko Noda told Dow Jones Newswires over the weekend. “This is the biggest downside risk factor for the Japanese economy.”

The doomsday scenario is not yet inevitable, but unless European leaders get their response right, the dominoes could start to fall very quickly.

Greece could be forced into a rerun of its inconclusive May 6 election in mid-June. Polls predict an even stronger showing for the mishmash of Trotskyites, neo-Nazis and other anti-austerity groups who surged in support triggered the current impasse.

They want Greece to renege on commitments to cut its huge budget deficit in exchange for the 130 billion euro bailout. Germany and other creditors have warned that would lead to a freezing of bailout payments. A bankrupt Greece would then be forced to drop out of the eurozone.

As that prospect draws near, savers facing the threat of exchanging their euros for a much weaker new national currency could spark a run on the banks and send their money to Germany or some other safe haven. Some reports suggest Greeks have already transferred 250 billion euro out of the country.

Renewed fears over Greece are already having a major impact on other at-risk countries. Portugal’s stock index hit its lowest level since 1996 on Monday and Italy and Spain both saw rates on their bonds rise to the highest levels this year.

If Greece heads toward a euro exit, creditors would send those rates soaring, casting doubt on the nations’ ability to pay their debts. Savers in Portugal, Ireland and Spain could also take fright and move their money abroad. Shaky banks would implode. G-8 economies Italy and France would come under threat.

Saving the euro, at that point, would need a massive intervention by the European Central Bank, backed by increased firewall funding from Germany and other more stable northern European nations to prop up the southerners. An agreement to share debt burdens or devalue the euro may also be required.

It is by no means certain, however, that skeptical voters in Germany, the Netherlands and Austria would go along with that. The incoming Socialist administration in France and restless political parties in Italy could also rebel against austerity measures which the northerners are likely to insist upon as part of a new financing deal.

Ireland could rule itself out of any future EU bailouts, if its austerity weary voters reject the EU’s fiscal discipline treaty in a May 31 referendum.

As eurozone finance ministers gathered in Brussels on Monday evening, officials in Brussels were acknowledging that the risk of a Greek exit — they are calling it the “grexit” — is now as great as at any time since the crisis erupted in late 2009.

Jean Claude Juncker, the Luxembourg Prime Minister who chaired Monday’s meeting of eurozone finance ministers, insisted, however, that other EU members were not seeking to push Greece out.

“Nobody was mentioning an exit of Greece from the euro area (in the ministerial meeting). I am strongly against,” Juncker told a news conference. “I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense. This is propaganda.”

Given that most Greeks say they want to keep the euro, European leaders are hoping they will return to mainstream politicians if there is a second election in June.

For that to happen, leaders in other European countries may have to take a gamble and intervene directly in the election campaign by making clear the vote will be in effect a referendum on staying in the eurozone.

“Without a Greek commitment this (bailout fund) won’t work, and this is the responsibility of Greek politicians,” Olli Rehn, the EU’s economics commissioner, said after the eurozone ministers’ meeting. “The future of Greece and the welfare of its citizens lie more than ever on the shoulders of Greek politicians.”

There is a risk that more foreign lecturing to the Greeks could backfire if voters rebel against yet more outside interference, but the EU is rapidly running out of options if it wants to keep the eurozone together.

“This generalized austerity is prolonging the crisis. I can’t accept that. We need growth in Europe,” says Francois Hollande, the Socialist leader tipped to win Sunday’s French presidential election.

“With every day that goes by, I have the feeling that my initiative is more and more understood in Europe,” Hollande said in comments posted on his website Monday.

Hollande is enjoying an eight-point lead over incumbent Nicolas Sarkozy in opinion polls ahead of Sunday’s vote. His expected victory is the main catalyst behind the emerging pro-growth emphasis in Europe, but there are other factors.

Continuing grim economic news — Spain announced Monday that it had sunk into a second recession in just over two years — is fueling doubts that Europe’s three-year dedication to spending cuts and tax hikes may not be the best way to cure the continent’s economic malaise.

“Europe has misdiagnosed its problems in important respects and set the wrong strategic course,” former U.S. Treasury Secretary Lawrence Summers wrote in a column this weekend. “Only if growth is restored can the euro endure and European financial problems be resolved.”

The Spanish newspaper El Pais reported Sunday that the EU was preparing a 200 billion euro “sort of Marshall Plan” to fund infrastructure projects, green energy and advanced technology.

EU spokeswoman Pia Ahrenkilde Hansen said Monday that such figures were “highly speculative.” However, the EU is putting together a plan to boost growth for approval at what is expected to be a highly significant summit of European leaders on June 28-29.

Wary that the new focus risks further spooking markets, Ahrenkilde Hansen told reporters that going for growth did not mean a return to slack finances. “We are not talking about an alternative to fiscal consolidation,” she said. “The issue is not either fiscal correction, or growth. We need both.”

The late June EU summit is likely to be Hollande’s first if he succeeds in unseating Sarkozy.

Much has been made of the Socialist leader’s expected clash with Merkel due to his criticism of the fiscal discipline treaty that is the centerpiece of her response to the treaty.

Both Merkel and Hollande in recent days endorsed two of the key pro-growth ideas expected to be on the summit agenda: fast-tracking the use of remaining money from the EU’s budget for developing its poorest regions, which ran at 360 billion euros from 2007-2013, and boosting the firepower of the EU’s lending arm, the European Investment Bank.

EU Economics Commissioner Olli Rehn has suggested that lifting its capital by just 10 billion euros could enable the EIB to leverage lending of 180 billion euros.

Although they have continued to spar in media comments, Hollande and Merkel have been preparing the ground for non-confrontational relationship. There are signs of a softening of the Frenchman’s demand for a renegotiation of the fiscal discipline treaty.

Defeat for Sarkozy would however be a blow for Merkel, who offered unprecedented support for the incumbent in the early stages of the French campaign.

She also risks losing allies elsewhere.

The Dutch government, one of the strongest supporters of Merkel’s insistence on austerity for southern Europe, fell last week over its own budget-cutting plans and will face a stern challenge from the center left and far right in September elections.

Parties on both political extremes are seen profiting from a wave of discontent in Sunday’s parliamentary elections in Greece to find a successor to the technocratic government which has gone along with the tough conditions set by the EU in return for bailout packages.

Adding to the pressure over the past few days, several key players have joined the chorus calling for a growth initiative, including European Central Bank Governor Mario Draghi; top EU financial services official Michel Barnier; and the UN’s International Labor Organization.

“Austerity has, in fact, resulted in weaker economic growth, increased volatility and a worsening of bank’s balance sheets,” said an ILO report released Monday. “It is high time for a move toward a growth- and job-orientated strategy.

Sickly economies in Greece, Portugal and Ireland may yet respond to the European Union’s limited array of economic remedies.

But if Spain’s attempt to heal itself with a shock-treatment of austerity fails, the EU may not be strong enough to prevent the infection from spreading to Italy, France and beyond.

“The big question is, can Europe ring-fence Spain, can they draw a line to stop this contagion happening? This is their biggest challenge,” says Carsten Brzeski, senior Brussels economist at the Dutch bank ING.

In the eye of the euro-debt storm late last year, Spain enjoyed a reprieve from the markets after Conservative Prime Minister Mariano Rajoy took office in December with a promise to knock the economy into shape and, more important, the European Central Bank’s (ECB) decision to give banks and governments a lifeline by pumping 1 trillion euros of cheap loans into the eurozone economy.

Things started to go sour in March when the effect of the ECB’s liquidity injection began to fade and Rajoy announced he wouldn’t be able meet an EU-agreed budget deficit target of 4.4 percent this year, despite 27 billion euros ($35.5 billion) worth of budget cuts and tax hikes.

“Spain is suffering from a serious loss of confidence again,” blogged economist Luis Garicano. “The perspective of a new reformist government had made our creditors think Spain was on the way up, now after the budget and some strange events, confidence has gone again.”

The rates Spain has to pay on borrowed money have been creeping up steadily.

On Tuesday, there was some relief as the country managed to raise 3.2 billion euros ($4.2 billion) in short-term loans, but at much higher rates. A bigger test will come on Thursday when the Madrid government tries to sell longer-term securities.

The yield on its benchmark 10-year bond has been edging over 6 percent — which is considered unsustainable for more than a short period. That is prompting concern Spain could be forced to seek a bailout from the EU and International Monetary Fund or worse: the risk of a Spanish default has risen to 37 percent, according to the consultancy CMA.

A bad bond auction on Thursday could cap a tough week for Rajoy, who has already seen Argentina’s President Cristana Fernandez feel confident enough of Spain’s weakness to announce she’s seizing a 51-percent share in the YPF oil company from its Spanish owner Repsol.

By eurozone standards, Spain’s public debt does not look so bad. At 66 percent of gross domestic product, it’s less than that of virtuous Germany and way lower than Greece at 150 percent or Italy at 119 percent.

Spain’s problems lie elsewhere. The collapse of a 2000s housing boom plunged families and banks into deep trouble. Household gross debt, which averaged 80 percent of income in the decade up to 2007, is now up at 126 percent.

Spanish unemployment is the highest in the eurozone, at almost a quarter of the workforce, and double that in Spaniards under 25 years of age. The economy is set to shrink this year and the country’s powerful regional governments are resisting Rajoy’s belt-tightening demands.

“We should be worried,” says Brzeski. “That does not mean that they are falling off the cliff or requiring an imminent bailout, but if you look at the combination of weak macro fundamentals, the still falling real estate market, high deficits, it looks increasingly likely that they will at some point in time need European support.”

Based on the bailouts of Ireland and Portugal, a rescue plan for Spain could cost the EU around 300 billion euros ($394 billion) over three years. That just about could be covered by the 800-billion-euro ($1-trillion) firewall that the EU hopes to have in place by the summer, but without leaving enough leftover if Italy gets into trouble.

A cheaper option, and one that would save Madrid the ignominy of handing over the running of its economy to the EU and IMF, could be a loan from the firewall fund to help Spain recapitalize its banks.

Neither solution tackles what many believe to be Spain’s fundamental problem: how to revive growth so that unemployment lines start to come down and home prices rise. Until that happens the risk of Spain’s economic malaise spreading will remain.

With her husband lagging in opinion polls, the incumbent first lady Carla Bruni-Sarkozy is playing an increasingly visible role in the election campaign ahead of the April 22 first-round vote.

The former supermodel-turned-singer-and-actress gave birth to President Nicolas Sarkozy’s daughter Giulia in October. Her frequent campaign appearances and interviews have sought to present a kinder, gentler side to the notoriously tetchy president.

“Thanks to Nicolas I’m living an extraordinary adventure,” Bruni-Sarkozy told Elle magazine recently in an interview in which she described how the president toils all-hours for the nation’s good, respects women and loves listening to her play guitar.

“This position has given my life a new dimension,” she went on. “In the middle of these serious crises, it allows me to understand the decisive issues of our country, so I can open people’s eyes to the lives of others, the French, and to listen more to their problems.”

Meanwhile, journalist Valerie Trierweiler has added a splash of glamor to the campaign as the partner of Sarkozy’s main challenger Francois Hollande. A self-declared “ordinary guy,” the Socialist candidate is leading in the polls, but is often derided as being rather dull. Trierweiler is credited with getting her man to lose some weight and dress a tad more snappily.

“That’s not true. He lost weight on his own and I loved him just as he was, even if he was carrying a few too many kilos,” Trierweiler said in her own interview with Elle. “I felt no need to change him, what I love in him goes well beyond all that.”

Trierweiler has been matching Bruni-Sarkozy for the media’s attention. The website aufeminin.com ranked the “fashion potential” of the “confidently elegant journalist” against Bruni-Sarkozy, an “artiste with top-class allure.” Taking into account such factors as “cool attitude” and “potential to seduce the French,” the “world’s leading online publisher for women” declared Bruni-Sarkozy the winner, but only by two points.

Trierweiler also has to face competition for the spotlight from Hollande’s ex.

Segolene Royal was Hollande’s partner for more than 20 years. They had four children together and followed parallel careers through the Socialist Party hierarchy until she edged him out of the running to become the party’s candidate in the last presidential election. On the eve of Royal’s defeat to Sarkozy in 2007, the couple announced they were no longer together.

Hollande had his revenge in last year’s Socialist Party primaries, scoring more than five times as many votes as Royal. Her decision to join him on stage at a campaign rally last week was a major media event.

“The cause we’re defending is bigger than us,” Royal told reporters. “That’s what allows us to put the past behind us and look to the future.”

Over in the Sarkozy camp, the president’s supporters have been accused of using the president’s ex-wife Cecilia Attias as a scapegoat for the bling-bling lifestyle that marked the start of Sarkozy’s term and have been a persistent source of criticism ever since.

She was the one behind the president’s Ray-Ban-and-Rolex style, says a new biography of Sarkozy. The cruises on a billionaire’s yacht and dinners in a swish Champs-Elysees restaurant “were all to please Cecilia,” said a pro-Sarkozy lawmaker quoted in VSD magazine last week. “He was really in love and wanted to reconquer her,” the anonymous politician added.

Beyond all the electoral tittle-tattle, Bruni-Sarkozy and Trierweiler have both tried to make serious points about the role of women in France. Trierweiler tweeted in disgust that she was being reduced to political arm candy when Paris Match, the magazine she writes for, ran a photo of her under the headline: “Francois Hollande’s charming asset.”

Trierweiler has praised Bruni-Sarkozy as a role model for managing to combine raising a child with her duties as first lady, charity work and a career. Bruni-Sarkozy also came to Trierweiler’s defense after suggestions she should curtail her career due to her relationship with Hollande. Trierweiler has shifted her journalistic focus from politics to culture during the campaign.

Meanwhile another famous journalist and politician’s wife is poised to make her comeback on French TV screens on election night. Anne Sinclair, editor of the French edition of the Huffington Post, will comment on the results for BFM TV.

She’s married to Dominique Strauss-Kahn, who had been the Socialist Party candidate frontrunner until he was accused of assaulting a maid in a New York hotel room last May.

Although those charges were dropped, the scandal ruined DSK’s political career. He is now under investigation in France over allegations of involvement in a prostitution ring.

That never happened, despite lingering German fears that Sarkozy’s main challenger Francois Hollande risks undermining Merkel’s European fiscal discipline pact by embarking on an old-fashioned Socialist spending spree.

In the end, Sarkozy’s advisors decided he’d do better by distancing himself from Merkelian austerity and focusing instead on tried-and-tested vote winners in France, like getting tough on immigration and erecting protectionist barriers against China and other perceived villains of globalization.

That’s also made sharing a platform with him seem somewhat less attractive to Merkel.

Many in Europe are viewing the French election with concern. The fear is that whichever candidate emerges victorious from the second-round vote on May 6, both are avoiding any serious debate of the tough economic decisions facing France and the rest of the eurozone.

“They need to reform the French economy, the labor market, pensions. They need to face all the other challenges, but I’m not sure they are ready to have those debates in France,” says Piotr Kaczynski, of the Center for European Policy Studies, a think tank in Brussels. “It’s never easy to take those decisions, but it can become easier once you have had a public debate on them.”

The French electorate is perennially averse to moves to overhaul its generous labor and social-protection arrangements, even though rules like a 35-hour maximum work week, and high corporate taxes or social costs for employers that run at almost double levels in Germany are blamed for the country’s declining economic competitiveness.

Although both Sarkozy and Hollande agree that France needs to boost growth and balance its budget, neither has prepared the electorate for the painful measures that may be needed to do that.

Instead, Sarkozy has focused on protecting French markets from foreign competition, while Hollande has promised to raise taxes on the rich to create tens of thousands of new public-sector jobs.

With Hollande leading in the opinion polls, Sarkozy in recent days has been issuing warnings that his rival’s tax-and-spend plans risk sending France the way of Europe’s southern crisis victims.

“You want the left? You’ll get Greece, you’ll get Spain,” Sarkozy told a campaign rally last week.

Hollande has been seeking to reassure European leaders that his demands for a greater commitment to economic growth will not lead to loose spending or a disintegration of the new treaty designed to guarantee fiscal discipline in the eurozone.

The German press has reported that, with an eye on Hollande’s opinion poll ratings, Merkel’s office has opened tentative contacts with the Socialist candidate. If Hollande does win, it will be essential that he quickly establishes a working relationship with Merkel on how to tackle the euro crisis.

Already jittery over Spain, Portugal and Italy, markets are likely to pounce on any signs of French wobbling on fiscal discipline or Franco-German divisions, especially since a Greek election called for May 6 will add to the political uncertainty.

“If the financial markets become restless again, as they have been doing of late, then that narrows Francois Hollande’s political room for maneuver should he be elected,” says Thomas Klau, who heads the Paris office of European Council on Foreign Relations. “The more nervous the markets are, the less he can afford to add to the uncertainty by triggering major tensions with his partners.”

European observers have discounted some of the more contentious declarations from Sarkozy and Hollande as campaign rhetoric designed to stop them losing votes to candidates on the political extremities.

Sarkozy is threatened on the right by the National Front candidate Marine Le Pen, while Hollande risks losing first-round votes to the Communist-backed Jean-Luc Melenchon.

Few take seriously Sarkozy’s threat to pull out of the European Union’s passport-free travel zone, and his appeal for protectionist trade measures is unlikely to muster support from other European nations.

“The call for a Buy European Act does reflect a strong French conviction, shared across the party political spectrum, that the present state of globalization is highly damaging for Europe,” Klau said. “This is viewed with a degree of concern by free trade apostles in the UK or countries like Germany, which do very well out of the current situation. This is not an agenda that France can hope to shape on its own.”

That reflects another reality the winner will have to come to terms with on May 6: the euro crisis has clearly revealed that the Franco-German partnership that was the driving force behind the European Union is no longer a marriage of equals.

“It’s hard to resist the temptation to compare the decadence or the disorientation of France with the personalities of the presidential candidates,” columnist Miguel Angel Bastenier wrote Tuesday in the Spanish daily El Pais. “If there are any remnants of that partnership that is supposed to run the European Union … it’s only because Berlin finds it more convenient to have somebody to share the burden of dealing with the crisis.”