By Dina Kyriakidou
ATHENS (Reuters) - Greek Prime Minister George Papandreou may have to water down new tax rises to secure wider political support for his efforts to tackle a debt crisis or risk a snap election which could rob him of his majority.
European leaders have warned they will hand no new cash to Greece unless Papandreou wins backing from opposition parties, demanding the kind of consensus achieved in Ireland and Portugal, also sucked into the euro zone crisis.
But the main conservative opposition New Democracy has turned down his call for support, saying his tax-based policy mix has stifled the economy and prompting talk that Papandreou may have to resort to snap elections to end the deadlock.
Government officials say the premier is fully aware that a snap early election would likely lead to a hung parliament and he will avoid it if he possibly can. Polls show support for the two main parties neck-and-neck at about 20 percent.
"There are some who push this idea of a national unity government without realising what a disaster it would be," said a government official who requested anonymity. "It would only serve those who prefer the chaos, the lack of rule of law."
But despite official denials, analysts said early elections, sure to plunge Greece into an even deeper crisis if they resulted in a weak government, will depend on whether Papandreou is confident he can weather the storm on his own.
If he thinks he could go down as the prime minister who led Greece to default then all bets are off.
"If he feels that he can make it, then he won't call for snap elections," said Costas Panagopoulos, head of ALCO polling agency. "If he feels he can't, then he'll blame New Democracy for the impasse and take it to the people."
EU and IMF inspectors are examining new Greek measures before granting the next 12 billion euro (10 billion pounds) tranche from a 110 billion euro (95 billion pounds) bailout. Without it, Greece cannot cover immediate funding needs of 13.4 billion euros and will go bust.
An alternative, floated by Greek newspapers, is a referendum on the additional austerity measures although a government spokesman denied that was under consideration.
European and IMF officials are leaning hard on New Democracy, which voted against a 110 billion euro international bailout for Greece, to give its consent.
But its officials say they see no reason to give the ruling PASOK socialists unconditional support on a policy that has proven wrong, demanding tax reductions instead of hikes.
"Portugal had no government and political consensus was necessary to grant the help," one party official told Reuters on condition of anonymity. "Here the government has a parliamentary majority and can pass laws. Our job is to be the opposition."
Analysts say Greek political parties appear not to have grasped the critical state of affairs.
Even if the next tranche of loans does flow, Greece won't be able to go to markets next year and will need an additional 27 billion euros to stay afloat.
"They are re-arranging the chairs on the Titanic," said Theodoros Kouloumbis of the ELIAMEP thinktank. "The danger is real and the parties must face it."
TAXING COMPROMISE
One way out of the deadlock is for the government to ease tax policies -- the main point of disagreement with New Democracy, which broadly agrees with privatisations and efforts to shrink the bloated state sector.
The IMF has already signalled the government relies too much on new taxes instead of fighting tax evasion and cutting spending, so it would be open to a compromise on this part of the new measures it wants to see.
And EU policymakers are keen to see Athens make more of its privatisation programme which, if ramped up, could leave some room for manoeuvre on tax.
Some analysts say New Democracy will need a lot of convincing to sign off on government policies, given the austerity applied so far appears not to be enough, while structural changes have fallen behind schedule.
"The recipe is wrong and the cook is bad," said Panagopoulos. "In over a year, not even a single flower pot on a civil servant's desk has been privatised."
But if the opposition did reject a concession on tax rises from Papandreou, he could paint them as the problem, putting them in an awkward position, particularly if elections loom.
RESHUFFLE POSSIBLE
Papandreou said on Wednesday he was not giving up efforts to reach consensus and that he would be open to talks.
"I am open to all good ideas and realistic proposals," he told reporters after meeting President Karolos Papoulias.
Despite an unprecedented deficit-cutting effort, including drastic wage and pension cuts and steep tax hikes, some targets such as revenues have been missed, EU/IMF inspectors say.
The battle against rampant tax evasion has not produced the desired results, privatisations are just starting and an austerity-induced recession will be deeper than expected.
If Papandreou decides to stay the course, he is likely to opt for a cabinet reshuffle to refresh his government's image as he redoubles efforts to exit the crisis, officials said.
"He is most likely to do it just before or just after the EU summit in June 23-24," another government official said on condition of anonymity.
His embattled Finance Minister George Papaconstantinou would most likely stay. Although attacked often by ministers at cabinet meetings, according to government sources, he has Papandreou's backing.
"Unless there is compelling reason to do so, he won't change his main captain in the middle of a storm," the official said.
(Editing by Mike Peacock)
