ATHENS (Reuters) - Greek political leaders meet on Wednesday to form a caretaker government that will lead the country into its second election in just over a month, with Greece's euro membership at stake in a mounting crisis rocking world markets.
Parties deeply divided over an unpopular EU-IMF rescue plan threw in the towel on Tuesday after nine days of failed attempts to put together a coalition, hitting heavyweight financial stocks as investors worried at the prospect that the euro zone weakling would remain in limbo for at least another month.
Opinion polls show that voters enraged with five years of recession, record unemployment and steep wage cuts are likely to elect a parliament as fragmented as the one they chose on May 6. But the vote, probably in mid-June, may well tip the balance of power toward leftist parties opposed to the bailout conditions.
Policymakers from European Union states and at the European Central Bank have warned that they would stop sending debt-choked Athens the cash it needs to stay afloat if a new government tears up the bailout and backs out of commitments to cut the public debt which are blamed by many Greeks for misery.
But many cash-strapped Greek voters shrug off the threat and see no contradiction between their deep-rooted wish to stay in the euro and their opposition to conditions imposed to obtain the bailouts that have staved off bankruptcy but have dragged the nation into its deepest economic crisis since World War Two.
"There is a bit of schizophrenia in our society right now. People want to stay in Europe - have the cake - but they also want to eat it - by attacking the creditors," said Theodore Couloumbis at Athens-based think-tank ELIAMEP.
"Much depends on whether the Greek people in this repeat election are going to vote with anger and passion or if they will cool off, reflect and see in effect what the real choices are. The choice is between bad and worse."
Party leaders will meet President Karolos Papoulias at 1 p.m. (6.00 a.m. EDT) to put together a caretaker government. It was not clear on Tuesday who would be part of that emergency cabinet, whose main task would be to organize the repeat election - the third in Greece in as many years.
Many in Greece pin their hopes on newly elected French President Francois Hollande, who campaigned on a pro-growth platform. Socialist Hollande offered some hope for more flexibility towards Greece on Tuesday, saying after his first meeting with German Chancellor Angela Merkel:
"I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity so that there is a return to growth in Greece."
But despite encouraging comments from the conservative German leader about wanting to see growth, differences remain over how far austerity programs might be relaxed.
IMF chief Christine Lagarde had earlier in the day joined a string of EU policymakers who have over the past days lifted the taboo of the possibility of an exit of Greece from the euro zone. She said it was important to be technically prepared for that possibility and warned that an exit would be "quite messy".
European shares fell to their lowest closing level since the start of 2012 after attempts to form a government collapsed. Traders said markets could slump further in the coming days, with fears of a contagion to other crisis-hit EU states including Spain and Italy sending the euro below $1.28.
Patience is also wearing thin among a number of EU policymakers exasperated by the fact that a country which accounts for barely two percent of the euro zone's economy should drag the bloc back into a deep crisis yet again after over two years of roller-coaster crisis.
"The 16 other governments in the euro zone really are at the end of their patience with Greece. There isn't room or any willingness to move," said one official involved in talks over Greece at the European Commission. "The decisions are really in Athens' hands. But it doesn't look good."
The lack of a deal after the May 6 election has also angered many Greeks, making widely discredited politicians even more unpopular.
"They should go to hell," said Giouli Thomopoulou, 59, an unemployed office clerk. "Only God knows what's waiting for us now. I'm very scared about the future.
"I don't think elections will solve anything because in a month we'll be in the same situation."
Alexis Tsipras, the untested ex-Communist youth leader whose Left Coalition party (SYRIZA) wants to tear up the bailout deal, is now leading in opinion polls but analysts said this election, possibly on June 17, is as unpredictable as the May 6 one.
"Public opinion is in total flux, in my 30 years of polling experience I have never seen anything like that before," said political analyst John Loulis. "Everything can change until the last minute. On the May 6 election, the mood swung towards SYRIZA in the last 24 hours before the vote".
Additional reporting by Harry Papachristou and Karolina Tagaris in Athens and Luke Baker in Brussels; Editing by Alastair Macdonald