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Eurozone Crisis Deepens As Greeks Fail To Form Government

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Antonis Samaras has admitted defeat in his attempts to form a coalition
Antonis Samaras has admitted defeat in his attempts to form a coalition

The Greek centre-right leader Antonis Samaras has said it is "impossible" for him to form a coalition government following Sunday's election.

His New Democracy party emerged as the biggest party after the vote, giving hope to supporters of foreign financial support for Greece. However, after contacting the other parties, it became clear that he would be unable to gather enough backing to form a government with the aim of staying in the euro and looking for renegotiation of the eurozone bailout.

"We directed our proposal to all the parties that could have participated in such an effort, but they either directly rejected their participation, or they set as a condition the participation of others who did not accept," he said in a televised address to the Greek people.

The task of forming a new administration has fallen to Syriza, the far-left group led by Alexis Tsipras opposed to the austerity programme.

Both Greece and France have been warned that Europe's austerity plans are here to stay in spite of the respective elections that delivered decisive votes against job cuts and tax rises.

France elected a leader committed to an economic recovery more focused on growth while Greek politics was left in disarray by an across-the-board thumbs down for savage Brussels-imposed cuts in return for massive bail-outs.

New French President Francois Hollande was warned by Germany that there was no question of unpicking an EU austerity-centred "fiscal treaty" agreed last December.

In a press conference on Monday, Chancellor Angela Merkel congratulated Mr Hollande on his victory and invited him for talks, but warned that the treaty was "not up for debate".

‘If we start to think we can renegotiate all this, then Greece would come along and say they want to renegotiate the troika package, then probably the other program countries would follow suit,” Merkel said. “You simply can’t do this.”

And the European Commission said that Greece - once it finds a workable coalition government - was expected to stick to the strict austerity commitments it made in return for continued EU/IMF funding.

A challenge to EU belt-tightening priorities was a central plank of Mr Hollande's election campaign, and even before the votes were counted on Sunday the Commission had suggested a new declaration be added to the treaty to reinforce a pledge to promote jobs and growth.

But the stand by the French newcomer has raised tensions in Berlin and in Brussels, while the failure in Greece of any party to win more than 20% of the vote reinforced the problems of making austerity stick.

The outcome of the two elections made markets wobble, with Greek shares down about 6% amid concerns that the odds on Greece leaving the euro were rising.

With Mr Samaras' failure to form a coalition it is unclear whether a new government can be assembled or if there will need to be another election within weeks.

Meanwhile David Cameron - who had signalled support for president Nicolas Sarkozy - has pledged to work "very closely" with Mr Hollande. The two spoke by phone soon after the new president Hollande won the poll on the back of his attacks on the austerity plans driven by chancellor Merkel and Mr Sarkozy.

A Downing Street spokesman said Mr Cameron would build on the UK's very close relationship with France.

"They both look forward to working very closely together in the future," he said.

Labour leader Ed Miliband congratulated Mr Hollande on his win and on his determination to push for jobs and growth in Europe.

"This new leadership is sorely needed as Europe seeks to escape from austerity. And it matters to Britain.

"He has shown that the centre-left can offer hope and win elections with a vision of a better, more equal and just world."

Mr Hollande was hailed as a force for further European integration by European Commission President Jose Manuel Barroso: "I know I can count on the personal engagement of Francois Hollande to advance European integration."

But future relations with Paris will depend on how far Mr Hollande tries to go in trying to switch the EU economic emphasis from tough austerity to sustainable jobs and growth.

Former EU commissioner Lord Mandelson predicted Franco-Germany unity, saying he expected Mr Hollande and Mrs Merkel to mount a renewed push for greater EU integration to shore up the eurozone.

He said: "I think that both from Mr Hollande and Mrs Merkel you are going to see the top priority being stopping the eurozone from splitting."

EU officials said an increased emphasis on jobs and growth in a treaty declaration was possible to appease France, although Brussels had been highlighting the issue throughout the last few years of austerity-driven policies.

But Mr Hollande's borrow-and-spend approach is bound to strain relations as efforts to restore eurozone credibility and stability continue.

And Mr Hollande's stand could encourage any incoming Greek government to ignore Brussels and relax austerity measures in a bid to respond to voters' demands.

Liberal Democrat MEP Sir Graham Watson acknowledged the possible strains ahead by declaring: "The campaign in France has involved a lot of European party campaigning, from Merkel backing Sarkozy, to both candidates using the other's European party colleagues to score points in the debate."

But Sir Graham, who is President of the European Liberal Democrat and Reform Party in the European Parliament said he hoped Mr Hollande's pledge to strengthen France's role in Europe would mean strengthening the economic governance of the euro.

On the Greek election Sir Graham said: "Greece witnessed a storm of protest against the two traditional ruling parties that also affected the liberal centre. Coalition building in Greece will prove to be extremely difficult and yet another election is looking likely."

Lord Mandelson warned: "Should Greece leave the eurozone I think it would call into question the whole future framework and I think it would put a question mark over the risk of market contagion and panic spreading from Greece to other periphery countries in the eurozone."