15/05/2012 05:46 BST | Updated 15/05/2012 06:05 BST

Eurozone Crisis: Greece Makes Last Attempt To Form Government As Markets Fall

Greek politicians are making a final last-ditch effort to form a stable government after more than a week of frenzied negotiation, as the prospect of leaving the euro combined with poor economic data spooked global markets.

The parties are trying to stitch together an emergency administration to run the country after an election delivered no overall majority.

If no deal can be reached, elections must be called for next month, with the probable result of a rejection by the Greek public of new austerity cuts.

The Greek left-wing Syriza party has said it will not join any coalition that supports a package of heavy austerity cuts - which are required by the IMF and the EU in order for Greece to receive a fresh package of bailout loans.

But talks between the centre-right New Democracy party, socialists Pasok and the Democratic Left collapsed after just an hour of discussions on Tuesday.

The latest failures have left markets spooked, leading to falls across Europe and Asia. Traders wiped £28.5bn from the value of London's leading shares index on Monday, and fresh falls were reported early on Tuesday.

Meanwhile the latest round of weak economic data from Europe led to further worries for investors.

The eurozone avoided faling into recession, but economic growth was flat for the first three months of 2012.

Germany announced it had returned to growth, with a 0.5% rise in GDP, but across the eurozone that was offset by the French economy posting zero growth and Italian GDP falling by a steeper-than-expected 0.8%.

Despite pressure from incoming French president Francois Hollande to ease austerity and back growth, who was sworn into office on Tuesday, there remains no sign that Greece's partners are prepared to relax the terms of the bailout deals.

The European Commission insisted the austerity plan remained the best option.

A spokesman said: "This is the best thing for Greece, for the Greek people and for Europe as a whole. Nothing has changed in our position - we want Greece to stay in the euro, we think the Greek (austerity) programme is the best course for Greece."

Measures to boost growth are certain to be discussed at the G8 summit at Camp David in the US on Friday, where Hollande will meet German Chancellor Angela Merkel and British PM David Cameron for the first time.

Downing Street insisted any funding to stabilise Greece during the process of leaving the eurozone should be for the eurozone countries alone - just like bailouts for those inside the single currency bloc.

Deputy Prime Minister Nick Clegg warned eurosceptics against gloating over the plight of the euro.

He said: "We as a country depend massively on the prosperity of the eurozone for our own prosperity, which is why I can never understand people who engage in schadenfreude - handwringing satisfaction that things are going wrong in the euro."

Meanwhile Chancellor George Osborne warned that Britain's economy would be hit hard if Greece left the eurozone.

Uncertainty over the future of struggling eurozone nations was having a "real impact" on growth, he said.

Speaking in Brussels, where he is attending talks between European Union finance ministers over the continuing crisis, Osborne criticised the "open speculation" by some eurozone members.

"The eurozone crisis is very serious and it's having a real impact on economic growth across the European continent, including in Britain, and it's the uncertainty that's causing the damage," he said.