Greece faces fresh poll threat as coalition talks flounder

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Greece on Monday faced the prospect of fresh polls after political parties failed to narrow divisions over a painful EU-IMF bailout deal, with few expecting progress at talks to form a government.

Meetings hosted by President Carolos Papoulias resume at 1630 GMT as eurozone finance ministers gather in Brussels where officials insist Greece must stick to the tough austerity measures it agreed to in return for the debt rescue.

If Athens does not, and the debt accord lapses, it appears increasingly that eurozone leaders are prepared for Greece to leave the 17-nation bloc despite fears that that outcome could destabilise the whole euro project.

Greek May 6 polls saw a huge protest vote against the austerity measures and produced no party able to command a majority in parliament which convenes Thursday when, absent a new administration, fresh elections must be called.

On Monday, the head of a small moderate leftist party, seen as the last hope for a coalition, said there was no chance of a unity government being formed.

"No unity government can emerge," Fotis Kouvelis, head of the Democratic Left party, told a Greek television, pointing to the refusal of the radical leftist Syriza party -- which came second on May 6 -- to join a coalition.

"A government without Syriza would not have the necessary popular and parliamentary backing," said Kouvelis.

Outgoing government spokesman Pantelis Kapsis said the situation was dangerous because of the pressing economic problems which Greece must tackle.

"At the moment, there is a political vacuum, which is very dangerous," Kapsis told Mega Television.

Syriza leader Alexis Tsipras has said he will not attend Monday's talks which will include the conservative New Democracy and the socialist Pasok parties that backed the 240-billion-euro EU and International Monetary Fund debt deal.

New Democracy, which came first in the polls, and Pasok third, would control 168 of the 300 seats in parliament if they could combine with the Democratic Left, which came last with 6.1 percent of the vote.

Kouvelis insisted, however, that Greece must "immediately" start to disengage itself from an EU-IMF deal which many see as only making problems worse as Greece languishes in a fifth year of recession.

Greek media comment was sceptical Monday about the talks, with the centre-left Ethnos saying "Syriza has opened the way to new elections and this time it will be a sort of referendum (on the bailout)."

For Eleftheros Typos on the right, the talks "are the last act in the drama of the 'no' national consensus. We are headed for new elections after Tsipras' veto."

The stakes could not be higher for Greece, given the uncertainties of a euro exit, and for the wider eurozone as voters grow disenchanted with governments which stress austerity to stabilise public finances at the expense of growth.

The election of Socialist Francois Hollande as French president on a pledge that growth must come first has ruffled feathers in Berlin where Chancellor Angela Merkel, under pressure too after a poor regional election result at the weekend, is trying to hold to the hard line.

The drawn-out bailout negotiations and now the Greek political impasse have become the lightning rod for fears over the eurozone's future, roiling European markets which tumbled again Monday as investors looked for safety.

Investors worry that if the Greek crisis cannot be contained, other much larger eurozone states such as Spain and Italy could need a bailout too, costing even more than those for Greece, Ireland and Portugal.

Spanish and Italian stockmarkets were down more than three per cent each in midday trade on Monday while London lost 1.78 per cent, Frankfurt shed 2.25 per cent and Paris sank 2.55 per cent.

"Greece's time in the euro seems limited now and a large bill for their default will need to be paid ... Germany's percentage of that will be large enough to shake the eurozone further," said broker Jonathan Bristow at Valbury Capital.

Recent opinion polls show Syriza likely to emerge as the largest single party in fresh elections, opening up a whole new political landscape.

"Syriza wants elections," Kouvelis of the Democratic Left said, adding that the country was 'clearly' heading for a new ballot.

In a statement Monday, Syriza reiterated that it would not attend the next round of talks and demanded that details of Sunday's negotiations be released 'so that the Greek people be informed of the plans and positions of the parties'.

On Sunday, Papoulias was said to have produced a letter from outgoing prime minister Lucas Papademos which, according to Greek media, showed that the state only has enough cash to pay salaries and pensions until late June.

Papademos has warned that Greek banks need to be urgently recapitalised after taking major losses in a bond exchange last month that erased nearly a third of Greece's huge 350 billion euros debt.

Greece is committed under the EU-IMF accord to finding another 11.5 billion euros in savings over the next two years and needs to repay 435 million euros in maturing debt on May 15.