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May 10, 2012, 12.56 AM IST | Source: Reuters

Leftist fails to form Greek govt, elections loom

GREECE-ALEXIS-TSIPRAS-PASOK:Leftist fails to form Greek govt, elections loom

By Harry Papachristou and Barry Moody

ATHENS (Reuters) - Leftist leader Alexis Tsipras gave up his attempt to form a new government on Wednesday, pushing Greece closer to its second election in a few weeks, after voter rejection of an EU/IMF bailout plunged the country into crisis.

Last Sunday's election, in which voters vented rage against mainstream parties over debt cutting measures imposed in exchange for the bailout, has caused deep political deadlock and brought European threats to eject Greece from the euro.

Radical Left Coalition leader Tsipras, given the second mandate to try to form a government since the election, gave up after both mainstream parties, conservative New Democracy and Socialist PASOK, refused to join an anti-bailout coalition.

The biggest party, New Democracy, had already failed to form a workable coalition and the baton will now pass to PASOK leader Evangelos Venizelos.

If he also fails, elections will be called in 3-4 weeks in the hope of breaking the deadlock.

"Our proposal enjoyed wide support in society but a weak one in parliament. We won't be able to realise our dream for a left government," Tsipras told his parliamentary group, Greece's second-biggest after May 6 elections.

Venizelos said he would continue the search for a coalition when his turn comes but there seems little space for compromise between pro and anti-bailout forces, almost equally balanced in parliament.

"We must form a government and give the country prospects for the future, hope and security," Venizelos said

The latest European leader to warn Greece of the dangers of being forced out of the euro, European Central Bank policymaker Ewald Nowotny, said Greece could not be helped if it would not help itself.

But European governments kept the country solvent for the moment by agreeing to authorise a 5.2 billion euros payment from the region's bailout fund to enable Athens to meet short term bond redemptions.

They agreed the payment despite opposition from some states following the anti-bailout vote.

New Democracy and PASOK, which ruled Greece for decades and jointly negotiated February's 130 billion euro bailout, were ravaged in Sunday's poll, receiving less than a third of votes and falling two seats short of a parliamentary majority.

LEFTIST DEMANDS

Tsipras had demanded that Samaras and Venizelos tear up the pledges they made in return for the bailout, which they rejected out of hand.

"Mr Tsipras ... asks me to accept Greece's exit from the euro and the country's bankruptcy. This is something I will not do," Samaras said after meeting Tsipras.

Venizelos is expected to get a three-day mandate on Thursday but the political impasse is so intractable that neither Samaras nor Tsipras used up the full time.

Angela Merkel, leader of euro zone paymaster Germany, said in a newspaper interview that she wanted Greece to stay in the common currency but it must stick to the terms of the bailout.

Polls show a vast majority of Greeks want to keep the euro currency - widely seen as impossible without the bailout - but are furious with the two mainstream political parties they blame for one of Europe's worst postwar recessions, record unemployment and endemic corruption.

Most believe cuts demanded by the EU and International Monetary Fund are only making the situation worse by increasing unemployment and preventing economic recovery.

TSIPRAS CONDEMNED

Samaras said earlier Tsipras's rejection of the bailout would drive Greece out of the euro and called on him to "come to his senses."

Tsipras, 37, refused to budge, saying coalition talks with the mainstream parties would only have meaning if Samaras and Venizelos agreed to revoke "barbaric austerity measures".

In a speech to trade unions and employers as part of his coalition talks, Tsipras added: "If the euro and the eurozone is threatened, it is threatened because of the austerity measures which were first applied in this country, as it was chosen to serve as a guinea pig."

Greek newspapers attacked politicians for playing dangerous games and said elections loomed.

Many Greeks seemed unfazed by the crisis created by the election, but some expressed alarm.

"People voted with anger not with reason," said 51-year-old widow Maria Savelona. "Tsipras lives in his own world. God help us, what is this? I'm afraid we will be kicked out of the euro and he thinks he is our saviour?"

Investment bank J.P. Morgan said in a note that if support returned to PASOK and New Democracy in a new poll, Greece might stay in the euro, with possible modifications to the bailout deal. Otherwise "exit from the Euro area will become very likely."

Megan Greene, senior economist at Roubini Global Economics, said that even if a pro-bailout coalition could be formed after a second election it would be weak and face extreme hostility from other parties in trying to meet austerity targets.

"A pro-bailout coalition could therefore provide a solution that might last for months, not years," she said.

Greece's crisis, and the prospect that it could revive the euro zone debt crisis, helped drive the euro towards a three-month low and pushed down global shares.

Greek finance ministry officials have warned the country might run out of cash by the end of June if it does not have a government in place to negotiate a next aid tranche.

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