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Greece faces new elections as government talks fail

Members of the media are seen as Greek political leaders. (REUTERS/Aris Messinis/Pool)

ATHENS: Debt-stricken Greece must hold fresh elections after talks on forming a new government broke up Tuesday without agreement, prolonging a tortuous crisis which has whiplashed the eurozone for years.

The new polls, expected on June 17, follow inconclusive elections on May 6 when a majority of Greeks voted against the austerity measures which Athens agreed to in return for a massive EU-IMF bailout late last year.

"We are going again towards elections, in a few days, under very bad conditions," socialist Pasok party leader Evangelos Venizelos said, regretting the fact that there was no accord.

"The Greek people must now make the right decisions for the good of the country," said Venizelos, who supported the EU-IMF deal in a technocrat government formed last November.

Panos Kammenos, leader of the Greek Independents party, lashed out at those he claimed would betray the people and who "prefer the creditors to national unity."

A statement from the president's office read on state TV noted simply that efforts to form a government had failed and that he would hold talks Wednesday at 1000 GMT with all political parties on setting up a caretaker administration.

Five of the parties which won seats in the May 6 polls went into the talks to discuss a presidential plan for a technocrat government, aiming to resolve differences over the austerity measures included in the EU-IMF accord, the second after a smaller bailout in 2010 failed to solve the problem.

President Carolos Papoulias called the meeting after talks Monday with the conservative New Democracy, Pasok and radical Democratic Left parties failed to reach an accord on a coalition government.

He had suggested that in the absence of any other solution, a government of "distinguished and non-political figures" should be considered to break an impasse over the tough austerity measures agreed to in the EU-IMF bailout.

Forming such a government would have avoided new polls and helped ease strains over Greece's eurozone future but time was short as parliament was to convene Thursday and new polls had to be called if there was no government in place by then.

Also attending Tuesday's talks was the radical left Syriza, which came second on May 6 on its pledge to scrap the austerity policy, if not the whole EU-IMF deal.

The polls produced no clear winner and showed a majority of Greeks opposed to the austerity measures, which many feel make the problems worse, reflecting increasing calls across Europe that the focus needs to be on growth.

Figures on Tuesday showed the Greek economy slumped a massive 6.2 percent in the first quarter compared with a year earlier, leaving the country mired deep in recession for a fifth year.

President Papoulias told Monday's meeting that time was running out for Greece, adding: "I am terrified at the idea of the problems facing the country" in the coming days.

Two tests were at least passed Tuesday -- the government managed to raise 1.3 billion euros in short-term funds even if it had to offer higher rates to do so, and it repaid 436 million euros in maturing debt.

That repayment covered private creditors who had refused to take part in an unprecedented debt write-down agreed under the EU-IMF bailout and a government source said the moved was aimed at settling the dispute.

The response to the news on the financial markets was immediate, with European stocks turning lower and the euro slumping below $1.28.

"Although it looks increasingly likely that Greece needs to go back to the polls, which increases the chances of it eventually leaving the currency bloc, we have yet to see a cataclysmic fall in the euro," said Kathleen Brooks, research director at trading site Forex.com.

"This suggests that the markets think that things are more manageable now, even if Greece goes back to the polls, or we could be in for a delayed reaction causing a bout of volatility in the coming days and weeks," Brooks added.

Success Tuesday would have marked a return to the technocrat solution of November when former central banker Lucas Papademos, supported by New Democracy and Pasok, pushed through the 240 billion euro ($310 billion) EU-IMF bailout accord.

In recent months, senior EU officials have more openly raised the prospect of Greece leaving the euro, but on Monday the head of eurozone finance ministers group hit back strongly, insisting that Athens was staying put.

"I don't envisage, not even for one second, Greece leaving," Jean-Claude Juncker said after the 17 eurozone partners unanimously affirmed their "unshakable desire" to keep Greece in the club.

There can be little doubt about the seriousness of the situation both for Greece, if it has to leave the eurozone, and for its partners, who might lose billions in its disorderly withdrawal from the bloc.

France would face a bill of 50 billion euros if Greece were forced to quit, its outgoing Finance Minister Francois Baroin warned Tuesday.

Charles Dallara, who as head of the Institute of International Finance helped negotiate the private creditor write-down, warned that the cost of failure would be too high to bear.

"I believe that the cost to Greece, the cost to Europe and the cost to the entire global economy may still be enough to cause Greek politicians and European politicians to pause before they pull the trigger on a Greek exit."

 

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