Greece's New Democracy seeks bailout coalition

ATHENS (Reuters) - Greece's centre-right New Democracy party will try to form a coalition on Monday with other parties backing the international bailout after a narrow election victory over the left that eased fears of a sudden exit from the euro.

The euro rose and European stocks were poised to open higher after Sunday's vote and the Athens streets were quiet after New Democracy leader Antonis Samaras pledged to move swiftly to form a government, telling supporters: "There is no time to waste".

The once-mighty Socialist PASOK party, now reduced to third place, indicated it would support Samaras but had not yet decided whether to join the government or just offer parliamentary backing.

"The people spoke yesterday and gave a clear mandate to pro-European parties to cooperate and fight the battle to keep the country in the euro," the daily Kathimerini, Greece's biggest daily newspaper, said on Monday.

"By tomorrow, the country needs to have a government of the widest possible acceptance with politicians and technocrats. PASOK must support such a government."

In deep recession, crushed under its huge public debt and facing rising social tensions, Greece faces a daunting struggle to restore its battered economy and the new government may face a renewed wave of protests once it takes office.

The radical left SYRIZA bloc, which had promised to tear up the bailout deal signed in March with the European Union and International Monetary Fund, scored strongly in the election and promised to continue its opposition to the painful austerity measures demanded of Greece.

With just short of 100 percent of ballots counted, New Democracy had won 29.7 percent of the vote, ahead of SYRIZA on 27 percent, while PASOK had 12.3 percent.

A 50-seat bonus automatically given to the party which comes first would give a theoretical New Democracy-PASOK alliance 162 seats in the 300-seat parliament, enough for a majority broadly committed to the 130-billion-euro ($164 billion) bailout.

The result sent the euro to a one-month high and lifted Asian shares by 2 percent while financial spreadbetters also pointed to a 1.2 percent rise on London's FTSE index and similar rises on European bourses.

But gains in the markets were capped due to further questions over the debt crisis and over the finances of the bigger euro zone economies of Spain and Italy, which have seen borrowing costs rise near to unsustainable levels.

SUPPORT

PASOK officials told Reuters that a meeting on Monday would decide how they would support Samaras - by participating fully in government, or by voting with the coalition in parliament.

The White House said it hoped the election outcome would lead to the swift formation of a new government that would make "timely progress" on economic challenges.

"We believe that it is in all our interests for Greece to remain in the euro area while respecting its commitment to reform," said President Barack Obama's press secretary Jay Carney.

The new government might get some relief from its euro zone peers. German deputy Finance Minister Steffen Kampeter said that officials from the EU/IMF "troika" would have to verify progress and any new aid depended on reforms but that Greece could not be pushed too much on reforms.

"It is clear to us that Greece cannot be over-strained," he told Germany's ARD television on Monday.

However even if it is granted some leeway, Greece will struggle to deliver on the program and analysts say a pro-bailout coalition may not last, having commanded only slightly more than 40 percent of the vote.

SYRIZA leader Alexis Tsipras, 37, made clear his was now the main opposition party, saying it would fight on against the bailout and take power sooner or later.

The result came as a relief for Greece's EU and IMF lenders and euro zone partners who feared a SYRIZA victory would tip Greece over the edge and the common currency towards break-up.

But the vote revealed a society deeply split between its desire to stay in the euro and a deep-seated anger at salary, pension and job cuts that have hit the poorest while sparing a political and business elite seen by many as corrupt.

"I don't think anything good will come out of these elections, no one had such illusions," said Dinos Arabatzis, a 56 year-old taxi driver who voted for New Democracy.

"Whoever is in power now will get burned. Samaras will get burned and Tsipras will come out much stronger if we go to elections again - that's what worries me," he said.

A protest vote looked set to give the ultra-right Golden Dawn party 18 seats, repeating its success of May 6 despite a now-notorious incident in which its spokesman threw water at one leftist opponent and slapped another during a TV debate.

More than two years of budget cuts have caused unemployment to jump to over 22 percent. Businesses are shutting down by the dozen and the homeless are multiplying on the streets of Athens.

RENEGOTIATE TERMS

Both New Democracy and PASOK have said they want to renegotiate the terms of the bailout to spread the burden over a longer period and take measures to boost growth.

Greece's EU partners and the International Monetary Fund welcomed the pro-bailout parties' victory, saying they were ready to work with the government that emerges. But EU officials have made clear Greece must stick to its pledges to receive more funding while hinting there may be some leeway at the margins.

"There can't be substantial changes to the agreements but I can imagine that we would talk about the time axes once again, given that in reality there was political standstill in Greece because of the elections, which the normal citizens shouldn't have to suffer from," German Foreign Minister Guido Westerwelle said.

Even so, Greece is in a desperate situation.

Its caretaker government says the state has enough cash to last a few weeks and Athens has pledged to come up with an additional 11.7 billion euros worth of spending cuts in June to qualify for the next loan installment.

(Additional reporting by Harry Papachristou, Renee Maltezou, Greg Roumeliotis and Lefteris Papadimas, editing by Mike Peacock and Michael Stott)

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