Greece sinks deeper into crisis, chance of govt fades

(Reuters) - Greece sank deeper into crisis on Tuesday when the Leftist candidate for prime minister set conditions for a new coalition which the biggest party said would destroy the country.

Antonis Samaras, leader of the conservative New Democracy party which finished first in Sunday's election, said Leftist Alexis Tsipras would drive Greece out of the euro with his demand that pledges made in exchange for an EU/IMF bailout be torn up.

"Mr. Tsipras asked me to put my signature to the destruction of Greece. I will not do this," Samaras said.

Tsipras, Greece's youngest leader at the head of the Left Coalition party, received a mandate to try and form a government from the president on Tuesday and immediately renounced the bailout and threatened to nationalise banks.

Left Coalition took second place in the election in which voters abandoned New Democracy and the formerly dominant socialist PASOK party in droves, incensed by their acceptance of harsh austerity measures in exchange for a bailout that is saving Greece from bankruptcy.

Samaras said he could support a minority government but not under Tsipras's conditions, indicating the leftwing leader had very little chance of forming an administration, and making repeat elections in a few weeks increasingly likely.

CHANCES OF GOVERNMENT FADE

PASOK leader Evangelos Venizelos, who negotiated the 130 billion euro bailout, is equally unlikely to renege on it. He called on Tuesday for a pro-Europe unity government.

Venizelos said he would set only one condition for joining a coalition: "That Greece stays in the euro and in Europe. We want things to get better not worse for Greeks."

Tsipras's told reporters: "The popular verdict clearly renders the bailout deal invalid."

His statement was likely to further unsettle jittery investors worried that Greece will again destabilise the euro zone, as it first did in 2009 when the debt crisis began.

A coalition alliance with PASOK and New Democracy had looked like the only way Tsipras could form a government, but his opening broadside seemed to rule that out.

If he fails, Venizelos will get his turn. If he cannot form a government, President Karolos Papoulias will call the parties together to make one last attempt at a unity government before calling fresh elections in around three weeks.

While the negotiations continue, outgoing technocrat Prime Minister Lucas Papademos is running the country. But when elections are called, Papoulias will appoint a short-term caretaker administration.

Tsipras got the chance to form the first leftist government in Greece's modern history after New Democracy gave up the task as impossible after only a few hours on Monday.

The uncertainty after Sunday's poll has caused widespread fear about the future.

"I'm confused. I feel numb and confused. Only God can save us now," said Panagiota Makri, 80, crossing herself and launching into a long prayer on an Athens street.

"The country is heading at high speed towards catastrophe," the Kathimerini daily said in an editorial.

On paper, Tsipras simply does not have the numbers, with only 71 seats in the 300 seat parliament available to any potential leftwing alliance. The Communists have already refused to join.

The only option with a slight chance of success would see PASOK join a coalition with Tsipras. If New Democracy stayed out of parliament for a confidence vote, rather than opposing it, Tsipras might win a majority.

His opening salvo seems to have rendered these calculations academic. And even if such a government was formed, analysts say, it would be very fragile and last only a few months.

EU officials have rejected any compromise on the terms of the bailout and without it, Greece would run out of money by the end of June, officials estimate.

European Central Bank board member Joerg Asmussen became the latest European official to say the bailout could not be renegotiated and there were no alternatives if Greece wanted to stay in the euro zone.

A senior official in Papademos's outgoing government said few of Tsipras's inexperienced aides seemed to understand that money would dry up to pay government salaries and pensions if the EU and IMF stopped the bailout.

Like many other senior politicians, the official blamed Samaras for underestimating the huge anger of the population over economic hardship, mismanagement and corruption and insisting on calling Sunday's vote instead of allowing Papademos to continue.

"HEADS IN SAND"

Theodore Couloumbis, political analyst for Athens-based think-tank ELIAMEP said many Greeks were in denial about the risk of being pushed out of the euro.

They thought "all we have to do is tell them we'll jump from the 10th floor and they will have a safety net for us. I say 'Beware, you may hit the ground and fall in many pieces'," he said.

Chris Williamson, chief economist at London-based research firm Markit said the election had moved Greece deeper into crisis and uncertainty after the election.

"There was some hope that the lack of conclusion would galvanise parties in reorganising and shaking things up but this isn't happening which is disappointing," he said.

"There's an element of sticking heads in sand and more thought needs to go into where Greece is going and its ability to deal with deficit," Williamson said.

Out on the streets, Greeks already depressed by the economic crisis expressed apprehension about what would happen next.

"I'm afraid about what will happen now. I'm afraid because I'm not sure parties will cooperate, they are so divided," said Vaia, 30, who works for a clothing shop.