* First attempt at forming Greek coalition fails
* Markets fret about risk of Greek euro exit
* Merkel tells French president-elect "no renegotiation"
* Hollande seeks to augment fiscal pact with growth plan
* IMF shows new flexibility on fiscal austerity
By Lefteris Papadimas and Paul Taylor
ATHENS/PARIS, May 7 An anti-austerity backlash
by voters in Greece and France shook the euro zone on Monday,
causing jitters for the euro currency and stock markets amid
deepening doubts about whether Greece has a future in the single
Greece, where Europe's sovereign debt crisis began in 2009,
slid into turmoil after an election on Sunday boosted left and
right-wing fringe parties, stripping the two mainstream parties
that backed a painful EU/IMF bailout of their parliamentary
Uncertainty over whether the country could avert bankruptcy
and stay in the euro deepened on Monday when Antonis Samaras,
leader of the conservative New Democracy party which won the
biggest share of the vote, failed within hours to cobble
together a government.
Samaras had had three days to form a coalition. However, his
call for a national unity government to keep Greece in the euro
zone but renegotiate the bailout programme fell on deaf ears.
Rebuffed by a string of anti-bailout parties, Samaras
admitted defeat shortly after President Karolos Papoulias had
given him the mandate to negotiate a coalition.
"It was impossible," he told reporters. "I handed back the
mandate." Next in line to try to form a government will be Left
Coalition leader Alexis Tsipras, whose party came second on a
platform of rejecting the austerity conditions of Greece's
latest bailout programme.
However, European Commission spokesman Amadeu Altafaj said:
"Full and timely implementation of the programme is of the
essence in order to meet the targets and (reach) sustainability
of the Greek debt."
The Greek result overshadowed France's presidential
election, in which Socialist Francois Hollande, who wants to
change Europe's policy focus from austerity to restoring growth,
ousted conservative incumbent Nicolas Sarkozy.
German Chancellor Angela Merkel, who had openly supported
Sarkozy, her partner in euro zone crisis management, promised to
welcome Hollande "with open arms" and work with him to maintain
strong Franco-German cooperation at the heart of Europe.
But she also made clear there could be no renegotiation of a
fiscal discipline treaty. Hollande has said France will not
ratify it unless measures are added to promote economic growth.
"We in Germany are of the opinion, and so am I personally,
that the fiscal pact is not negotiable. It has been negotiated
and has been signed by 25 countries," Merkel told journalists.
"We are in the middle of a debate to which France, of
course, under its new president will bring its own emphasis. But
we are talking about two sides of the same coin - progress is
only achievable via solid finances plus growth," she added.
Jean-Claude Juncker, head of the Eurogroup of euro zone
finance ministers, said he had told Hollande on Monday that the
European Union's fiscal pact could not be renegotiated.
"It will not be possible to change the substance of the
fiscal pact, there will not be a formal new negotiation in that
respect," Juncker said after Hollande had telephoned him.
However, he added: "It is possible to add growth elements,
not necessarily in the form of a treaty.
Hollande's election gave leaders of struggling southern
European countries a new ally in their effort to temper the
German drive for austerity that has exacerbated their problems.
In a telephone call with Hollande on Sunday night, Italian Prime
Minister Mario Monti promised to cooperate on refocusing
European policy towards growth.
The International Monetary Fund showed some new flexibility
on Monday over how quickly it would press deeply indebted
countries to bring their budgets under control if economic
IMF Managing Director Christine Lagarde in a speech in
Zurich said the IMF is aware that fiscal austerity holds back
growth and the effects are worse in an economic downturn. Hence
calibrating the cutbacks and achieving the right pace are
essential, she said.
"As next year looms on the horizon, countries need to keep a
steady hand on the wheel. If growth is worse than expected, they
should stick to announced fiscal measures, rather than announced
fiscal targets," she said.
"In other words, they should not fight any fall in tax
revenues or rise in spending caused solely because the economy
weakens," Lagarde said.
She also said on the world's advanced economies still had to
cut their debts or face even more pain.
"The most important element is to lay out a credible
medium-term plan to lower debt," she said. "Without such a plan,
countries will be forced to make an even bigger adjustment
The Greek and French votes unsettled investors, undermining
confidence in Europe's plans to cut spending and tackle the debt
crisis, given the scale of public opposition.
The euro fell to a three-month low of $1.2955 in Asia
before recovering trade at around $1.3050 at 1830 GMT. European
stocks slipped early in the day on the Greek news but most
recovered later, except the Athens stock exchange, down 6.67
French debt was spared from the selloff, in a sign that
markets are more relaxed about the moderate Hollande. The yield
on French 10-year bonds fell to its lowest in seven months.
In Greece, Sunday's election threatened to produce what
daily Ta Nea called a "Nightmare of ungovernability". Among the
parties that stormed into parliament were the extreme right-wing
Golden Dawn, which won 6.97 percent and 21 seats.
The Left Coalition pushed the former ruling PASOK Socialist
party into third place. Between them, New Democracy and PASOK
won 149 of the 300 seats, two short of a majority.
Greece had appeared to have averted a disorderly default and
euro exit in December when a government led by former central
banker Lucas Papademos, and supported by the two main parties,
agreed on a second international bailout under which private
bondholders accepted sharp write-downs on their holdings.
But the four straight years of recession, wage and pension
cuts and still rising mass unemployment drove angry Greeks
further to the left and right.
Greece consistently missed targets under its first
programme, agreed in April 2010, which led to the restructuring
of its private-sector debt under the second package.
Officials say any further backsliding now will not be
tolerated, especially with the International Monetary Fund a
reluctant partner in the second programme.
Three Greek finance ministry officials told Reuters the
country might run out of cash by the end of June if it does not
have a government in place to negotiate the next instalment of
EU/IMF aid and projected state revenues fall short.
Euro zone leaders have so far done everything to avoid a
Greek default and departure from the euro, which Merkel has said
would be a catastrophe. Officials are worried by the precedent
it could set for other troubled south European countries.
But public support for further bailouts is wearing thin in
the euro zone's triple-A rated lenders Germany, the Netherlands
and Finland, raising doubts about their willingness to go on
supporting a recalcitrant Greece.
Some European diplomats and economists have been predicting
the possibility of Greece leaving the euro area for months.
In a research paper published on Feb. 6, Willem Buiter, the
chief economist at Citi, raised his estimate of the likelihood
of Greece dropping out of the currency zone to 50 percent over
the next 18 months, from 25-30 percent previously. On Monday,
Citi raised the probability again to 50-75 percent.