GREECE:Greece lurches towards new vote, hard left leads
By Lefteris Papadimas
ATHENS (Reuters) - Greek politicians were set to abandon their quest to form a government on Saturday, leaving the president with one final chance to avert new elections that could drive Greece out of the European single currency.
Greece's political landscape is in disarray after voters humiliated the only parties backing a rescue plan tied to spending cuts, leaving no bloc with sufficient seats to form a government to secure the next tranche of financial aid.
Without the aid, the debt-stricken country risks bankruptcy in weeks and - as European leaders now openly acknowledge - potential ejection from the euro zone.
The prospect of a new election has caused havoc in financial markets, both in Greece and across Europe, where the idea that Athens might leave the euro is viewed as potentially damaging to
bank balance sheets and the credit ratings of other vulnerable countries.
On Friday, as politicians acknowledged their failure to agree a coalition, the euro sank to its lowest point since January near $1.29.
Opinion polls conducted in the week since the election show the SYRIZA coalition of charismatic 37-year-old radical leftist Alexis Tsipras surging into the lead.
He says the bailout deal must be torn up, though like most Greeks he says he still wants to keep the euro, a position which is seen in Brussels as untenable without the bailout's austerity commitments.
On Friday, Tsipras rejected an offer to form a unity coalition of all parties, a proposal made by Socialist leader Evangelos Venizelos - the outgoing finance minister who negotiated the much-hated 130 billion euro bailout package with lenders.
Venizelos, the third political heavyweight to fail to form a government in the week since the election, is due to meet President Karolos Papoulias at 1000 GMT on Saturday to give up his mandate.
Papoulias will then meet the leaders of all parties in parliament and try one last time to persuade them to create a government or, if they cannot, to call a new election, expected in mid-June.
Newspapers suggested on Saturday that Papoulias would wait until Monday to summon the politicians, leaving Greece and anxious watchers in the euro zone in limbo for now.
Last Sunday's election saw the two parties that dominated the country for generations - Venizelos's PASOK and the conservative New Democracy party of Antonis Samaras - humiliated.
The two, which together usually hoovered up around 80 percent of votes, saw their combined vote tally collapse to just 32 percent. The rest of the votes were won by small parties that oppose the bailout, ranging from the Communists to the far right.
Polls taken since then show the anti-bailout vote consolidating around Tsipras, whose good looks and self confident manner have helped make him a hero for young people.
Without their bailout deal in place, Venizelos and Samaras warn that Greece is headed for certain ejection from the euro and bankruptcy. If a second election does take place, they will be hoping that frightened voters return to the traditional parties.
But the momentum is clearly behind Tsipras in a country where more than half of young people are now unemployed. The two main parties' middle-aged leaders are widely loathed as incompetent, self-interested and out of touch.
A cartoon on the front page of the Ta Nea newspaper showed the boyish Tsipras riding off with the ballot box on a toy horse.
A poll by Metron Analysis for the Epenenditis weekly published on Saturday showed SYRIZA would take 25.5 percent of votes - almost 9 points higher than its Sunday result. A poll earlier this week gave SYRIZA 27.7 percent.
Both results would put it way ahead of New Democracy and PASOK, and give Tsipras a bonus of an extra 50 seats in the 300-seat parliament for coming first.
The bailout requires Greece to cut wages, raise taxes, fire state employees, sell off state assets and restructure labour laws. EU leaders say it is necessary if Greece is ever to become solvent.
But opponents say the harsh medicine is self-defeating, making it impossible for Greece to grow its economy and emerge from the depths of the euro zone's worst recession, which has ground on relentlessly for five years.
SYRIZA argues that Greece can abandon the bailout and that European leaders will not carry out their threats to withhold funding, because they cannot risk the damage to other EU countries that would be caused by a Greek collapse.
"They will be begging us to take the money," SYRIZA deputy Dimitris Stratoulis said on Friday.
But European leaders say the next tranche of loans due in late June is in jeopardy if Greece does not emerge with a government committed to the bailout package.
If a second election is held, voters will be given a stark choice, said Chris Williamson, chief economist at London-based research firm Markit.
"I think it is going to be increasingly presented as a vote to effectively leave the euro. That's how it will be seen outside of Greece and the rhetoric will build up to ensure that voters are aware of the implications."
(Additional reporting by Karolina Tagaris; Writing by Peter Graff; Editing by Andrew Osborn)