UPDATE 2-Bulgaria's ruling party leader calls for July election
* President to hold meeting for election date next week
* South Stream pipeline in focus for Bulgarian leaders
* Government faces no-confidence vote this week (Adds quote on South Stream, details, party meeting)
SOFIA, June 10 (Reuters) - Bulgaria should hold an election as early as next month, the head of the ruling Socialist party said on Tuesday, saying the instability caused by having a government on "life support" was bad for the country.
The Socialists have bowed to pressure both from their own coalition partner and the main opposition GERB party to hold an early election after their poor performance in last month's European Parliament poll, gaining less than a fifth of the vote.
Sergei Stanishev's call for a vote in July is earlier than other parties would like. GERB would prefer an election to be held at the end of September or early October. The ethnic Turkish MRF, the Socialists' junior coalition partner, would prefer November or December.
Whichever date the president negotiates, any new government will have to take difficult decisions in its dealings with the EU and Russia over Moscow's proposed building of a gas pipeline through Bulgarian territory to bypass Ukraine.
"Political instability is the biggest danger. Bulgaria does not need a government that is on life support," Stanishev said. "If there is enough political will, early elections in July, by the end of July, are a possible and realistic option."
Calling an early election would mark the second government collapse in two years in the European Union's poorest state.
The Balkan state has been hit by political instability and street protests over corruption and dissatisfaction at the political elite since last year, and Prime Minister Plamen Oresharski's minority government has relied on the support of hardline nationalists to survive a series of confidence votes.
High on any new government's agenda will be the fate of the Gazprom-led South Stream pipeline project, whose proposed construction has trapped Bulgaria in an intensifying standoff between the West and Russia over energy supplies.
Under the threat of punishment from the EU, Bulgaria on Sunday announced it had suspended work on its portion of the $45 billion pipeline pending a decision on whether it complies with EU law - prompting criticism from Moscow.
MRF has urged the government not to risk a row with Brussels. The centre-right GERB has accused the government of mishandling discussions with the EU over the project and said it would support it only with Brussels' blessing.
"It is more likely that the project will be delayed, seriously delayed, given the EU concerns about it," said Daniel Smilov, a political analyst with Centre for Liberal Strategies.
Due to its fragile public support and coalition infighting, the government has also been unable to push through a series of reforms, such as tackling graft, cleaning up the judiciary and overhauling its inefficient education and healthcare sectors.
Economic growth has also remained sluggish, and foreign direct investment fell sharply last year.
The decision on the date of the election ultimately rests with Bulgaria's president, who on Tuesday announced a meeting of all party leaders next week to agree on a date.
Analysts say that no party is likely to emerge as an outright winner in the coming election, which could saddle Bulgaria with another unstable coalition government.
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