ATHENS Greece's conservatives said they are poised to form a coalition government with the Socialists on Tuesday, allowing the two parties that dominated politics for decades to share power despite a major anti-establishment election vote.
Conservative New Democracy leader Antonis Samaras promised to negotiate less punishing terms for Greece's international bailout, after only narrowly beating a radical left-wing party which campaigned to scrap the austerity deal entirely.
A senior New Democracy official expected agreement soon on a new cabinet with the PASOK Socialists and possibly another smaller centre-left party following Sunday's election, the second in as many months.
"We are going to clinch a deal tomorrow, we will form a government," the official said late on Monday, declining to be named. "PASOK will participate more than symbolically ... They will participate actively."
New Democracy and PASOK alternated in power from the fall of military rule in 1974 until last year, when Greece's economic crisis forced the archrivals to share power in a pro-bailout national unity government.
Many Greeks hold both parties responsible for the nation's near bankruptcy, which forced it to take bailouts from the European Union and IMF in 2010 and again this year.
New Democracy narrowly won the election, averting the immediate risk of a Greek euro zone exit but raising doubts on whether the new government can impose austerity cuts on a nation deeply divided over the price for bailout funds.
After claiming victory over the radical leftist SYRIZA party to jubilant crowds, Samaras began on Monday the more sobering task of talking to rivals to cobble together a coalition.
The greatly weakened PASOK, which finished third in Sunday's vote, has yet to commit to supporting Samaras, but its leader Evangelos Venizelos said talks must be wrapped up by Tuesday - signaling a deal would be agreed by then.
The smaller, moderate Democratic Left party, which opposed the bailout backed by the conservatives and the Socialists, has also suggested it will offer conditional support to a government led by Samaras.
With Greece just weeks away from running out of cash and a new government needed to negotiate the next installment of funds from lenders, Greek political leaders appeared determined to avert the deadlock that followed an inconclusive vote on May 6.
"I am optimistic that this time they will agree to form a government," a Greek banker who declined to be named told Reuters. "They have realized that there is no margin of error or further delays. A third election would be a disaster."
With New Democracy taking a 50-seat bonus under Greek electoral law for coming first, a New Democracy-PASOK alliance would have 162 seats in the 300-seat parliament. Adding the Democratic Left would give it a 179-seat majority.
NATION IN CRISIS
A difficult road lies ahead for Samaras, a U.S.-educated economist who went to college with former Socialist Prime Minister George Papandreou.
He inherits a nation in deep social and economic crisis, with an economy in its fifth year of a recession that has left one in five workers out of a job. A rising number of businesses are closing down, the number of homeless on streets is growing and anger against austerity cuts is at a boiling point.
Samaras promised Greeks and prospective partners that he will water down the painful terms of the EU/IMF bailout keeping Greece afloat, paying scant attention to protests from European paymaster Germany, which opposes giving the country further leeway on its commitments.
"We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships," he said.
Samaras campaigned on promises to cut taxes as well as raising unemployment benefits and pensions.
The New Democracy official said the new government would aim to accelerate and broaden a privatization program to top up state but also ask its creditors to spread 11.7 billion euros of further austerity cuts over four years instead of two.
But any efforts to veer off the prescribed austerity path will be viewed with anger from European partners who are already irritated at what they sees as the slow pace of Greek reform. Germany has ruled out more than minor delays to some targets in the 130-billion-euro rescue package.
Chancellor Angela Merkel said at a meeting of G20 leaders in Mexico that any loosening of Greece's agreed reform promises would be unacceptable and reiterated that Athens had to stick to the commitments it had already made.
With an emboldened SYRIZA bloc led by former communist student leader Tsipras at the head of a powerful opposition, the new government could face protests soon after taking office. SYRIZA almost doubled its share of the vote since the previous election on May 6.