Greece faces dangerous turmoil after election

President Karolos Papoulias summoned New Democracy party leader Antonis Samaras to talks, where he was expected to be given a three-day mandate to try and form a new government as the biggest party after the vote.

New Democracy and Socialist PASOK were devastated by the election, in which Greeks angrily voted against the two traditional ruling parties who imposed economic hardship in exchange for a bailout that keeps the country afloat.

They will not have enough parliamentary seats to form a coalition government on their own and a raft of smaller groups who benefited from the election oppose the bailout.

In an early setback for Samaras, Fotis Kouvelis, leader of the moderate Democratic Left party that had looked like a possibly malleable ally, told Reuters he would not cooperate with New Democracy and PASOK but only leftwing groups.

Another moderate group, the conservative splinter party Independent Greeks, refused to even enter talks with Samaras.

In the face of what looks like an intractable impasse, another election in a few weeks could be the only way out, deepening doubts about Greece's future.

"Country in Limbo" said a headline in the Imerisia newspaper. "Nightmare of Ungovernability" said Ta Nea daily.

Many Greeks seemed shocked at what they had done in an election earthquake that sent tremors across Europe and increased fears of a return to the euro zone debt crisis first sparked by Greece in 2009.

"I'm hopeful but also scared," said 36-year-old Sofia Tsaliki, an office clerk. "New elections won't bring anything, but at least we are giving a message to the politicians and Europeans that they need to take proper notice and cannot ignore us any more."

The result rattled investors, sending the euro to a three-month low and safe haven German government bond futures to record highs, although the index of top euro zone shares was flat on the day, suggesting alarm was muted.

Analysts expressed deep gloom about the Greek outcome with Citigroup saying the odds of an exit from the euro zone had risen to between 50 and 75 percent from 50 percent previously.

FRAGMENTED PARLIAMENT

With counting from Sunday's vote complete, New Democracy and Socialist PASOK, the only major parties supporting an 130 billion euro EU/IMF aid program, had won just over 32 percent of the vote and only 149 out of 300 parliament seats.

Greece's parliament will be the most fragmented for decades and the only way to a workable coalition looks like some kind of row-back on the terms of the bailout, something which lenders and northern European countries firmly reject.

"Either they stick to the program and receive the financing from member states or they will have to default," a senior euro zone source told Reuters.

"It is of course of central importance to underline that they must uphold the direction of fiscal policy. They must continue to uphold the measures they have pledged in the programs," Swedish Finance Minister Anders Borg said.

A source in Samaras's party said he would start negotiations later on Monday with all parties except the extreme right-wing Golden Dawn whose success in the election increased the shock among Greeks at the result.

"I'm shocked they got into parliament. I wasn't expecting it, it's frightening. I think it was an irresponsible vote. We Greeks aren't fascists," said 74-year-old Panos Alexopoulos.

The biggest beneficiary of the protest vote was the Left Coalition party of Greece's youngest political leader, Alexis Tsipras, aged 37 who will be one of the first to see Samaras.

He won nearly 17 percent of the vote compared to 5 percent in the last election three years ago.

Party officials indicated they would not compromise on their demands for an end to austerity policies.

Samaras says he is likely to wind up his efforts tomorrow, ahead of the three-day deadline.

If he fails to form a government, the mantle will pass to Tsipras, then PASOK leader Evangelos Venizelos.

JUNE DEADLINE LOOMS

Time is short before with Greece needing parliamentary approval next month for over 11 billion euros in extra spending cuts for 2013 and 2014 in exchange for more aid.

Sassan Ghahramani, CEO of New York-based hedge fund advisers SGH Macro said: "The best outcome you can get at this point is an unstable government.

"What is happening in Greece has reopened the wild card of euro zone stability ... if it left the euro zone there would be contagion, pressure on the rest of Europe that is vulnerable."

Costas Panagopoulos, head of ALCO pollsters, said a highly unpredictable repeat election was the most likely scenario with the parties playing a blame game over the next 10 days before giving up. "I cannot see how they can form a coalition government," he said.

But another pollster, head of MRB group Dimitris Mavros, said the anti-bailout parties may not want another election because the outcome was so uncertain, and voters could swing back to traditional parties because of fears of being forced out of the euro.

Greeks overwhelmingly support membership of the single currency.

"Greeks don't want to risk leaving Europe but they also want to send a message that following these policies monotonously cannot be tolerated," Mavros said, suggesting the victory of Francois Hollande in Sunday's French presidential election may make Greeks bolder in demanding an end to austerity.