Greece hits political stalemate, euro exit fears grow

(Reuters) – Greece’s president met little enthusiasm

from political leaders summoned to a final round of talks on Monday to avert a new election,

reinforcing fears the country was firmly on the path to bankruptcy and an exit from the euro zone.

European shares slid and Spanish and Italian bond yields rose as the political

deadlock threatened to reignite the euro zone debt crisis. Greek banking stocks tumbled 7

percent.

Greece’s political landscape has been in disarray since an inconclusive election on

May 6 left parliament divided between supporters and opponents of a 130 billion euro ($168.3 billion)

EU/IMF bailout, with neither side able to form a government.

After Sunday’s effort at cajoling

party leaders into a coalition proved fruitless, President Karolos Papoulias summoned four party

leaders for a fresh round of talks on Monday evening.

But the talks appeared doomed long before

they began, as the young leader of the radical leftist SYRIZA party said he would not attend and

another leftist leader refused to take part in any coalition unless SYRIZA was on

board.

Papoulias must call a new election if he fails to engineer a compromise. Such a poll is

expected to be held in mid-June.

With Greece set to run out of money as early as next month

and no government in place to negotiate the next aid tranche, investors have begun betting that a

long-speculated Greek default and euro exit will happen sooner rather than later.

European

paymaster Germany

appealed to Greeks to build a viable government, but acknowledged that the country was in a difficult

situation.

The prospect of national bankruptcy and a return to the drachma appeared to be slowly

sinking in among Greeks, who must now choose between the pain of spending cuts demanded in return for

aid and an even more painful existence outside the euro.

“We have to stay in the euro. I’ve

lived the poverty of the drachma and don’t want to go back. Never! God help us,” said Maria Kampitsi,

70-year old pensioner, who had to shut down her pharmacy two years ago due to the crisis.

“They

must cooperate or we’ll be destroyed, it will be chaos. For once, they must care about us and not

their chair.”

“IMPOSSIBLE EQUATION”

Capturing the self-defeating nature of an election

that has drawn the country towards bankruptcy, the Ta Nea daily ran a front page picture of a man

shooting himself and blood splattered across the backdrop in the shape of Greece.

“SYRIZA has

paved the way for new elections. And this time, whether we like or not, they will be more like a

referendum. We will have set ourselves the question whether we prefer the euro or the drachma,”

centre-left daily Ethnos wrote in an editorial.

SYRIZA, which polls suggest would come first if

elections were held again, said on Monday it was willing to take part in one-to-one talks with the

president or talks that included all parties except the far-right Golden Dawn party.

But it was

unclear what difference that would make and the president’s office said it was not changing its plans

for Monday’s meeting.

European leaders have reacted with growing disbelief to the rhetoric from

the party’s 37-year-old leader Alexis Tsipras, who has promised Greece can simultaneously renege on

the terms of its bailout and stay in the euro zone.

“I think that is an impossible equation and

I think in that sense it is an irresponsible statement,” said Finland’s Minister for European Affairs

Alexander Stubb.

“We fully realize that the precondition for Greece staying in the eurozone is

for it to fulfill the engagements that it has made to the IMF, to the European Central Bank and to the

commission.”

In a sign of the shifting European mood on Greece and a growing sense that its exit

from the euro is manageable, European officials who once refused to discuss a Greek exit now talk about

it openly as a real, if painful, possibility.

But none of this has fazed Tsipras, who has gone

from strength to strength on his pro-euro and anti-bailout message to become the unexpected Greek

political star of the moment.

The anti-bailout vote that was divided among small parties but has

now rallied behind Tsipras, who stands to get a bonus of 50 extra seats in the 300-seat parliament if

he wins a repeat election – raising the possibility of an anti-bailout coalition.

Tsipras has

consistently refused to join a coalition government with the establishment conservative and socialist

parties that ruled Greece for decades, but were punished by voters last week for their role in agreeing

the EU rescue, which requires deep cuts in wages and pensions.

That has helped push Greece into

its fifth year of recession, which in turn has left one out of five Greeks jobless and ushered in an

increasingly volatile social climate.

Three gas canisters exploded at tax office in an Athens

suburb early on Monday, causing minor damages, police said.

Any coalition without the

conservatives and socialists would have to combine the far-right and far left, which both have ruled

out.

($1 = 0.7726 euros)

(Additional reporting by Tatiana Fragou and Lila Chotzoglou;

writing by Deepa

Babington; editing by Philippa

Fletcher)