Greece: A nation on the brink

As the President makes a last-ditch effort to forge a unity government, Michael Pooler and David Connett report on what will happen if the country has to go back to the polls

President Karolos Papoulias will today become the fourth senior politician in Greece to attempt to form a new government for the debt-stricken country. President Papoulias last night called Greece's political leaders to a meeting in a last-ditch attempt to forge a unity government.

The President will meet the leaders of all parties in parliament and try one last time to persuade them to create a government or, if they cannot, to call a new election, expected next month. The presidential move followed his meeting with the socialist Pasok party leader, Evangelos Venizelos, at which Mr Venizelos surrendered his mandate to form a government. Mr Venizelos gave up the mandate after failing to persuade Alexis Tsipras, leader of the hardline leftist Syriza coalition, to form a unity government.

In televised remarks, Mr Venizelos yesterday urged the President to lean on Mr Tsipras to join an "ecumenical government". "I put this forth to Mr Tsipras. I haven't received a positive response," Mr Venizelos said. "I believe that is where your efforts should be focused during the consultations." Antonis Samaras, leader of the conservative New Democracy party, abandoned efforts to form a governing coalition earlier in the week.

If the President's bid, the fourth such attempt in the past seven days, fails, fresh elections will be held which many believe will effectively become a vote on whether Greece should stay in the single currency eurozone. Last Sunday Greek voters humiliated the pro-bailout parties that support tying Greece to drastic spending cuts. The results left none of the parties with enough seats to form a government to secure the next tranche of financial aid. Without aid from the EU and the IMF, Greece risks bankruptcy in weeks and potential ejection from the eurozone. The election results led the euro to drop to its lowest point against sterling in more than three years.

Opinion polls conducted in the days following the election suggest any attempt to persuade Mr Tsipras to join a government that supports the bailout will fail. The polls showed growing support for Mr Tsipras and his anti-bailout coalition. A newspaper poll yesterday showed the Syriza coalition would take 25.5 per cent of votes – almost 9 points higher than its election result. A poll earlier in the week showed an even greater lead. Both results would put the Tsipras-led coalition ahead of the New Democracy and Pasok parties, with 50 more seats in the 300-seat parliament.

Mr Tsipras says the bailout deal must be torn up, though like most Greeks he still wants to keep the euro, a position seen in Brussels as untenable without the bailout's austerity commitments. Such views are attracting support, particularly from the young. More than half of young Greeks are now unemployed and Mr Tsipras's good looks and self-confidence have helped make him their hero. The two main parties' middle-aged leaders are widely seen as out of touch.

Both Mr Venizelos and Mr Samaras warn that Greece is heading for ejection from the euro and bankruptcy. If a second election does take place, they will be hoping frightened voters return to the traditional parties. The bailout requires Greece to cut wages, raise taxes, fire state employees, sell off state assets and restructure labour laws. EU leaders say it is necessary if Greece is ever to become solvent.

But opponents say the harsh medicine is self-defeating, making it impossible for Greece to emerge from the eurozone's worst recession, which has now ground on for five years.

Syriza argues that Greece can abandon the bailout and European leaders will not carry out their threats to withhold funding, because they cannot risk the damage to other EU countries that would be caused by a Greek collapse. "They will be begging us to take the money," Syriza's deputy, Dimitris Stratoulis, claimed on Friday.

But European leaders say the next tranche of loans, due in late June, is in jeopardy if Greece does not emerge with a government committed to the bailout package. If a second election is held, voters will be given a stark choice, said Chris Williamson of the London-based research firm Markit. "I think it is going to be increasingly presented as a vote to effectively leave the euro. That's how it will be seen outside Greece, and the rhetoric will build up to ensure that voters are aware of the implications."

Central bankers across Europe are already discussing the possibility of a Greek exit from the euro and how to handle the fallout, the Swedish Riksbank's deputy governor, Per Jansson, admitted yesterday.

Europe is "certainly more resilient" to a Greek exit than it was two years ago, when the bloc would have been "massively underprepared", the EU Economic and Monetary Commissioner, Olli Rehn, told a conference in Estonia. But he warned that "it would be much worse for Greece and Greek citizens, especially less well-off Greek citizens, if Greece left the euro than for Europe. Europe also would suffer, but Greece would suffer more."

A Greek exit from the euro could be "technically" managed, but would damage confidence in the monetary union, said Patrick Honohan, a European Central Bank governing council member. A Greek departure would be "destabilising" for the rest of the euro area, and all sides are trying to avoid it, he said. "It is not necessarily fatal, but it is not attractive."