Greece lurches towards new vote, hard left leads

(Reuters) - Greece's president summoned party leaders on Saturday for one final attempt to avert new elections, but the effort looked doomed to fail after politicians deeply divided over austerity plans said they would stick to their guns.

Greece's political landscape is in disarray a week after an election left parliament almost equally divided between parties backing and opposing an EU/IMF bailout that keeps Athens afloat in return for pledges of deep spending cuts and tax hikes.

If President Karolos Papoulias fails in a final attempt to persuade leaders to form a coalition, he will have to call a new vote in June. Opinion polls predict the balance of power would tip decisively towards the bailout's radical leftist opponents, potentially jeopardising Greece's membership in the euro zone.

Papoulias called the leaders of the three biggest parties for coalition talks on Sunday at 0900 GMT, after Socialist leader Evangelos Venizelos became the third and last of them to acknowledge he had failed to assemble a coalition.

Without a government to negotiate a new aid tranche from the EU and IMF, Greece risks bankruptcy in weeks and - as European leaders now openly acknowledge - potential ejection from the common currency.

A week of efforts to put together a government failed because of disagreement over the bailout. Party officials said on Saturday they would not change their stances.

"There is no change (to our position)," said Panos Skourletis, a spokesman for the anti-bailout Left Coalition SYRIZA party, which placed second on Sunday and has since seen its popularity increase as anti-bailout voters rally around its charismatic 37-year-old leader, Alexis Tsipras.

"It is obvious that there is an effort to bring about a government that will implement the bailout. We are not participating in such a government," Skourletis told Reuters.

Tsipras has the most to gain from a new vote. If, as polls predict, SYRIZA overtakes the conservatives to place first, it would be awarded an extra 50 seats in the 300-seat house, making the former student activist - little known outside Greece just weeks ago - into the country's pre-eminent politician.

A senior official at the smaller and more moderate Democratic Left party, which has enough seats to give the pro-bailout parties a majority, reiterated that it would not participate in a government unless SYRIZA also agreed to join.

HAVOC

Last Sunday's election saw voters punish the two parties that dominated the country for generations - Venizelos's PASOK and the conservative New Democracy party of Antonis Samaras - which jointly negotiated the bailout package.

The two, which usually account for around 80 percent of votes, saw their combined tally collapse to just 32 percent. The rest of the votes were cast for small parties that oppose the bailout, ranging from the Communists to the far right.

In televised remarks during his meeting with Papoulias, Venizelos urged the president to lean on Tsipras to join an "ecumenical government".

"I put this forth to Mr Tsipras. I haven't received a positive response," Venizelos said. "I believe that is where your efforts should be focused during the consultations."

The president replied: "There are signs of optimism in what you are telling me and I hope I can contribute to the formation of a government - because things are rather difficult."

The lurch towards a new election has caused havoc in financial markets, both in Greece and across Europe.

On Friday, as politicians acknowledged their failure to agree a coalition, the euro fell to its lowest point since January near $1.29, and the Athens stock exchange lost 4.5 percent, sinking to its lowest level in two decades.

The prospect of Greece leaving the euro was once seen as potentially devastating for the continent's financial system, but is now seen as more manageable as banks wrote off much of their Greek debt this year.

Irish central bank chief and European Central Bank policymaker Patrick Honohan said on Saturday a Greek exit would damage confidence in the euro zone but need not be fatal.

"Technically, it can be managed. It would be a knock to the confidence for the euro area as a whole. So it would add to the complexity of the operation until things settle down again. It is not necessarily fatal, but it is not attractive," he told a conference in Estonia.

"SEXY ALEXI"

If a new election is declared, Venizelos and Samaras will be hoping Greek voters are frightened enough by the prospect of losing the euro that they return to the traditional parties.

But the consolidation of the anti-bailout vote around Tsipras means that even if PASOK and New Democracy pick up votes, they could lose a large number of parliamentary seats.

Tsipras says the bailout deal must be torn up, though like most Greeks he also says he wants to keep the euro, a position seen in Brussels as untenable without the bailout.

In a country where more than half of young people are now unemployed and most blame the middle aged political class for pursuing narrow interests, he has tapped into generational rage.

The momentum is clearly behind him. 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.

Good looks and a self confident manner have also helped. One of the slogans of his supporters on the internet rhymes: "Come on Alexi - for a Greece that's sexy!"

The European Union/International Monetary Fund bailout requires Greece to cut wages, raise taxes, fire state employees, sell off state assets and reform labour laws. EU leaders say it is needed if Athens is ever to become solvent.

But opponents say the harsh medicine is self-defeating, making it impossible for Greece to emerge from the euro zone's worst recession which has ground on relentlessly for five years.

Germany opened the door on Saturday to additional measures to promote growth in Greece, but said any such steps would still depend on Greece carrying out its agreed reforms.

"There is not a better solution. Greece must now show if it has the power to get the necessary majorities for this. I can only hope that those responsible in Greece will quickly see reason," German Finance Minister Wolfgang Schaeuble said in an interview with the Welt am Sonntag weekly.

(Additional reporting by Karolina Tagaris and Renee Maltezou; Writing by Peter Graff and Ingrid Melander)