Greece appoints caretaker PM as elections are set for 17 June

Greece has appointed a senior judge as prime minister of a caretaker government that will lead the country to repeat elections next month.

The move comes as Greece lurches through a political crisis that has threatened its continued participation in the European Union's joint currency.

Council of State head Panagiotis Pikrammenos, 67, is to be sworn in tonight at the head of a government political leaders said would not be able to make any binding commitments until new balloting, which is expected on June 17.

The protracted political uncertainty has worried Greece's international creditors as well as Greeks themselves, with the country's president warning wrangling political leaders that millions of euros had been withdrawn from bank deposits in the aftermath of the inconclusive May 6 election.

About 700 million euro (£559 million) in deposits have flown out of Greek banks, President Karolos Papoulias told party leaders on Monday after being briefed by central bank governor George Provopoulos.

"The situation in the banks is very difficult," Mr Papoulias said, according to a transcript of the meeting's minutes released last night. "Mr Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic."

There were no queues at banks in Athens after the elections, but Greeks have been gradually withdrawing their savings over the past two years as the country's financial crisis deepened, either sending the money abroad or keeping it in their homes.

"I would expect the population to quietly be doing what it has been doing in the last days. In other words, some of the Greek citizens are afraid and are taking a portion of the money, but I'm not expecting a bank run," said Theodore Krintas, managing director of Attica Wealth Management.

The May 6 election saw a massive rise in popularity for parties that advocate pulling out of Greece's commitments to its international bailout deal, under which it agreed to strict austerity measures in return for billions of euros in rescue loans. The spending cuts and tax hikes have left the country mired in the fifth year of a deep recession and sent unemployment soaring to above 21%, and many argue the country cannot hope for recovery if they stick to the deal.

"I want to believe that next time the people will express their opposition to the bailout agreement even more adamantly so that a strong government will be formed without the current parties," civil servant Christina Papadopoulou said of the repeat ballot.

Negotiations to agree on a coalition government collapsed yesterday, nine days after voters furious with the handling of the country's financial crisis deserted the two formerly dominant parties in favour of smaller anti-bailout groups. The election left no party with enough votes for a majority in parliament.

"In a democracy, new elections are the natural consequence of the impossibility to form a government following an election. It will now be for the Greek people to take a fully informed decision on the alternatives, having in mind that this will be indeed an historic election," said European Commission president Jose Manuel Barroso.

"We will of course respect the democratic decision of the Greek people," he added. "At the same time the Greek citizens should be aware that there are 16 other democracies in the euro area. The democratic decisions taken in the euro area must also be taken into account."

It is the bailout loans from other eurozone countries and the International Monetary Fund (IMF) that have been keeping the country afloat, and losing them would lead to state coffers running out of money, including for pensions, healthcare and salaries. It is unclear how the mid-June election will affect the continued disbursement of the loan instalments.

"It is our wish, and I think the wish of all Greece's European partners, that a Greek government which is capable of acting emerge as soon as possible from these elections," German chancellor Angela Merkel's spokesman, Steffen Seibert, said in Berlin. "I am not going to say anything here now about the payment of tranches which are due at the end of June - that doesn't have to be decided on in mid-May."

The instability has put Greece's prospects of remaining in the euro at the top of the agenda.

"If the country's budgetary commitments are not honoured, there needs to be appropriate revisions, which means either supplementary financing and additional time, or mechanisms for an exit, which in this case must be orderly," IMF head Christine Lagarde said in an interview on France 24 television.

Greece leaving the euro "is something that would be extremely expensive and would pose great risks, but it is part of the options that we must technically consider".

Greece now faces a month of inertia, with a government hamstrung by party leaders' insistence that it can take no binding decisions.

"It will be a strictly caretaker government, which must not take any action at the EU or Nato that will be binding for the Greek people," Communist Party head Aleka Papariga said. "If there is an emergency or unforeseen event, that can be addressed by the consultation among the parties with the involvement of the president."

Alexis Tsipras, head of the Radical Left Coalition, or Syriza, which came a surprise second in the May 6 elections after campaigning on an anti-bailout platform, said he had requested "that the caretaker government should not implement measures that would involve further cuts in salaries, pensions and public spending, that would dismantle labour relations or allow privatisations. I also asked for a freeze on every ongoing process regarding the sale of state property".

Mr Tsipras is the frontrunner for the next election. Recent opinion polls have shown him as likely to come first, though with nowhere near enough votes to form a government on his own - meaning more coalition negotiations will be needed.

The two mainstream parties, conservative New Democracy and socialist PASOK, have warned that anti-bailout policies will lead Greece out of the euro.

"Two courses lie ahead of the Greek people: either to change everything in Greece - with changes which can be carried out in a Europe that is also changing - or to experience the terror of an exit from the euro, the terror of isolation outside Europe and the collapse of all we have built so far," said New Democracy head Antonis Samaras.

A win by Mr Tsipras would put him in a dominant position to make a coalition deal with other anti-bailout parties, even if he cannot form a government alone.

"This will make reaching an agreement between the next government and Greece's international creditors extremely difficult, raising the risk of a Greek exit from the euro and sovereign debt default," said Robert O'Daly, senior economist at the Economist Intelligence Unit. "The consequences of this would be dire for Greece and probably the rest of the euro area."

AP