Greece's political deadlock went into a second week as PresidentKarolos Papoulias failed to secure agreement on a unity governmentand avert new elections with the country heading toward a possibleexit from the euro area.

Greece's biggest anti-bailout party, Syriza, defied overtures tojoin the government yesterday, deepening the impasse. Leader AlexisTsipras won't attend a meeting called by Papoulias today at 7:30p.m. Athens time, the party said in an e-mailed statement.

“Syriza won't betray the Greek people,” Tsipras said instatements televised on NET TV after meeting with Papoulias and theleaders of the New Democracy and Pasok parties. “We are being askedto agree to the destruction of Greek society.”

Papoulias spent yesterday trying to coax the country's threebiggest parties into a coalition after a week of talks failed todeliver a government. If Papoulias's efforts fail, new electionswill need to be called. Today's meeting will be with the leaders oftwo of the three biggest parties, and the head of the smallerDemocratic Left party, state-run NET TV said.

Greece's political impasse since the inconclusive May 6 electionhas raised the possibility another vote will have to be held asearly as next month, with polls showing that could boostanti-bailout Syriza to the top spot. The standoff has reignitedconcern the country will renege on pledges to cut spending asrequired by the terms of its two bailouts negotiated since May2010, and, ultimately, leave the euro area.

Pasok, New Democracy and Democratic Left agreed last week on agovernment that would last until 2014 and be committed to keepingthe country in the euro region and renegotiating bailout conditionsfrom the International Monetary Fund and European Union to boostgrowth. Syriza's Tsipras turned down the approach on May 11 as thefirst opinion polls since the elections showed he was gainingsupport.

Democratic Left has said that Syriza, the second-biggest party,must be part of its proposed unity government, or give it tacitsupport at least, if the government is to succeed. The position hasbeen adopted by Pasok and New Democracy.

Proposal 'Failed'

“The president told me that we have no agreement on thisproposal of ours as yet,” Fotis Kouvelis, the head of theDemocratic Left party, said after meeting with Papoulias. “I regretthat this proposal has failed.”

The ASE Index dropped 3.7 percent to 589.42 at 12:10 p.m. inAthens, its lowest level since November 1992. The benchmark measurefell 11 percent last week. National Bank of Greece SA fell 4.7percent as Greek banks led declines. Opap SA, Europe's largestlisted gambling company, plunged 14 percent to 5.05 euros ($6.50),its biggest drop in over seven months.

The euro dipped 0.3 percent to 1.2872 as of 10:09 a.m. inLondon, its lowest level in four months, before euro-area financeministers convene in Brussels today.

Tsipras won't attend “selective meetings” called by thepresident, the party said today. He may attend a meeting of allparties, excluding ultra-nationalist Golden Dawn, or talk privatelywith the president, it said.

Yesterday, Tsipras challenged the three pro-bailout parties togo ahead with forming a government, saying they would lacklegitimacy.

“The three parties that have agreed on the policy framework fora two-year government to implement the memorandum have 168lawmakers in the new parliament,” which has 300 deputies, he said.“They have the majority so let them proceed. Their demand forSyriza to join their planned agreement is illogical.”

Syriza would come in first, though short of an outrightmajority, with 20.5 percent of the vote, if elections were heldagain, according to a Kapa Research poll for the newspaper To Vima,released May 12. It got 16.8 percent in the May 6 election. Supportfor New Democracy would fall to 18.1 percent from 18.9 percent andPasok would drop to 12.2 percent from 13.2 percent, according tothe survey.

“It's not about arithmetic,” Evangelos Venizelos, the socialistPasok leader said after yesterday's meeting. “If someone wants todrag the country to elections again to find ourselves in the sameprocess and possibly the same dead end, with slightly different andbetter terms for some, then they must assume thatresponsibility.”

The Kapa poll showed 78 percent of Greeks want the government todo whatever possible to keep Greece in the euro area and that 72percent want political parties to make concessions to form acoalition, compared with 22.9 percent who want new elections. Kapasurveyed 1,007 Greeks May 9 and 10. The poll had a margin of errorof 3.1 percentage points.

Two Seats Shy

The May 6 election resulted in New Democracy and Pasok, the twoparties that supported the international rescue in an interimgovernment this year, being two deputies short of the 151 seatsneeded for a majority in Parliament.

Tsipras failed to reach an accord with other leaders aftergiving them an ultimatum to renounce support for the EU-led rescuein order to enter the government. Both Antonis Samaras, the leaderof New Democracy, and Venizelos, rejected the request.

Samaras, whose party finished first, gave up trying to forge acoalition after six hours of talks on May 7.

A Greek departure from the euro could be “technically” managedyet would damage confidence in the monetary union, European CentralBank Governing Council member Patrick Honohan said May 12.

“It is not necessarily fatal, but it is not attractive,” Honohantold a conference in the Estonian capital, Tallinn.

Greece will run out of cash by early July if partners decide towithhold their next aid payment. The European Financial StabilityFacility on May 9 confirmed that a 5.2 billion-euro tranche will bereleased by the end of June, with 4.2 billion euros alreadydisbursed May 10. The remaining 1 billion euros will be releaseddepending on Greece's financing needs.

Leaders said they were given a note on the state of the economyby interim Prime Minister Lucas Papademos yesterday. Some Greekpolitical leaders, such as Independent Greeks head Panos Kammenos,said they would refuse to read it unless it is published.

Ta Nea reported that the letter underlined the state will findit difficult to cover payments in June due to the political impasseand the holding back of the 1 billion euros. The newspaper didn'tsay how it got the information.

Under the terms of the bailout, a new government will need tospell out how it will save 11 billion euros next month.

“While last week's election was largely about budget cuts, thenext one will be entirely about the euro,” Erik Nielsen, chiefeconomist at Unicredit Bank AG, said in a note. “But I don't knowwhat share of the 70 percent of Greeks in favor of the euro willfully appreciate the connection between reforms and using theeuro.”

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