Greece's election, in which the two main parties failed to win acombined majority, raised the risk that the nation will exit theeuro and prompted calls for policies to boost European economicgrowth.

Greece now faces a 50 percent to 75 percent likelihood ofleaving the euro in the next year to 18 months, Citigroup Inc.economists Guillaume Menuet and Juergen Michels wrote in a reporttoday. They'd previously estimated the risk of a euro exit at 50percent.

“Every country can decide to leave the common euro area, ofcourse Greece can as well,” Austrian Chancellor Werner Faymann toldstate radio ORF today. “You just have to know what it means — andthe Greeks will have to consider that.”

Greek stocks fell the most in 3 1/2 years after voters flockedto anti-austerity parties in yesterday's polls. Along withSocialist Francois Hollande's win in France's presidential vote,the Greek outcome compels Europe's leaders “to reflect” and“urgently adopt concrete policies for economic growth,” ItalianPrime Minister Mario Monti said in a statement.

Greece's political leaders struggled today to find the supportneeded to form a coalition government, calling into question thecountry's ability to impose the measures needed to guarantee itsfuture in the euro. The country is due to present details tocreditors in June a plan to save 11.6 billion euros in 2013 and2014 as part of the second bailout deal.

New Democracy, which partnered with the socialist Pasok party tosecure a second rescue package for Greece, won 19 percent of thevote and 108 seats. Pasok trailed in third place with 13 percentand 41 seats. Combined, the two parties are two seats shy of 151seats needed for a majority.

Syriza, a coalition of leftist parties that has vowed to cancelthe bailout terms, got 16.8 percent of votes and 52 seats as thesecond-biggest party.

“The Greek elections resulted in one of the worst possibleoutcomes” that “will add to the uncertainty,” Credit Suisseeconomists including London-based Yiagos Alexopoulos, said in ane-mailed note. “The most likely alternative, at this stage, wouldbe new elections next month.”

The election was the first since Greece helped trigger theEuropean debt crisis and comes as voters across the region turntheir backs on austerity measures backed by German ChancellorAngela Merkel. In France, Hollande defeated President NicolasSarkozy yesterday and in Germany Merkel's party suffered its worstresult in more than a half a century in the northern state ofSchleswig-Holstein.

German Reaction

“The result is not uncomplicated, but I think the most importantthing is that we give Greece the possibility to evaluate theresults on its own,” Merkel told reporters in Berlin today.

“It is of utmost importance that the programs that we agreed onwith Greece continue to be implemented,” she said. “The process isa difficult one, but despite that it should go on.”

The European Commission said the next Greek government needs toabide by bailout terms agreed to by its predecessors, and voicedconfidence Greece will stay in the euro, spokeswoman Pia AhrenkildeHansen told reporters in Brussels today. She called on Greece toform a “stable” government.

Bowing to German calls for austerity, Greece agreed to imposepension and wage cuts in return for two international rescues worth240 billion euros ($312 billion). Greece must continue spendingcuts to keep disbursements flowing. Failure to do that maydetermine whether Greece remains in the euro.

The cuts have come even as Greece's economy is mired in itsfifth straight year of contraction. Gross domestic product shrankan annual 7.5 percent in the fourth quarter, and the Bank of Greecesays GDP will fall about 5 percent this year. The jobless rate hasreached almost 22 percent.

Should Greece leave the euro, it could be faced with capitalflight as well as euro-denominated legacy debt with a new currencythat would be worth less than the euro, Austria's Faymann said.National Bank of Greece SA, the country's largest lender, plunged15 percent today.

“Those scenarios, the pros and cons will certainly be discussedin Greece in the coming weeks and you have to talk about this veryclearly,” Faymann told ORF. “You will have to tell the people whathappens when a country leaves the euro.”

Greek Debt

European taxpayers are on the hook for a majority of Greek debt.After two bailouts since 2010, 73 percent of Greece's 266 billioneuros in debt is held by the European Central Bank, euro-areastates and the International Monetary Fund, according to Greece'sdebt office. In 2010, before the first rescue, Greece owed about310 billion euros, all to the private sector.

Monti said the Greek and French election results will give Italymore room to continue to push for economic-growth policies at theEuropean level. “Responsible public finances are a necessarycondition, but certainly not sufficient to meet to the key goal:sustainable growth that creates jobs while ensuring socialfairness,” he said in the statement late yesterday.

Monti was echoed by Hungarian Prime Minister Viktor Orban, whotold reporters in Budapest today that the two elections showedEurope must focus on economic growth and jobs.

Pasok leader Evangelos Venizelos, the former finance ministerwho negotiated the second rescue packages, said voters had providedno clear mandate. Former Prime Minister George Papandreou toldItaly's La Stampa newspaper that Greeks had voted againstausterity, not against the European Union.

New Democracy leader Antonis Samaras said he'd try to puttogether a “national salvation” government that will keep thecountry in the euro. As leader of the biggest party, Samaras is dueto receive a three-day mandate today to try to form a government.He meets with the president at 3 p.m. Athens time.

“A ND-Pasok coalition with a very narrow majority would probablynot last long, perhaps not even through the vote on 11.3 billioneuros in new austerity measures for 2013-2014 that is due inJanuary, according to the terms of the second Greek supportprogram,” Holger Schmieding, London-based chief economist ofBerenberg Bank, said in an e-mailed note.

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