Antonis Samaras admits he has found it “impossible” to form a government of national unity as the power vacuum in Greece continues.
Greece, where Europe’s sovereign debt crisis began in 2009, was plunged into a political crisis after a general election boosted far-left and far-right splinter groups and left the the mainstream parties who back a painful international financial rescue package unable to form a majority.
Antonis Samaras, leader of the conservative New Democracy party, which won the biggest share of the vote, was given three days to form a coalition as analysts predict a Greek exit from the single currency.
But on Monday night he announced: “I did everything I could in order to have an effective result. But it was impossible. Therefore, I informed the President and have handed back the mandate (to form a government).”
Samaras had called for a national unity government to keep Greece in the euro zone but renegotiate the bailout programme.
But European Commission spokesman Amadeu Altafaj said there would be no wriggle-room for a country dependent on the EU and the IMF bailout package to stave off bankruptcy.
He said: “Full and timely implementation of the programme is of the essence in order to meet the targets and (reach) sustainability of the Greek debt.”
In any event, Mr Samaras’s initial talks with Alexis Tsipras, the 38-year-old head of the second-placed Radical Left Coalition party, failed, increasing fears that neither Mr Samaras nor anyone else will be able to forge a majority government. Another election could come as early as next month.
Between them, New Democracy and the former ruling socialist party PASOK won 149 of the 300 seats, two short of an overall majority.
The hardline Left Coalition, opposed to the austerity programme, overtook the former ruling PASOK Socialist party in second place. The extreme right-wing Golden Dawn won 6.97 per cent of the vote and 21 seats.
The euro fell to a three-month low in Asia before recovering later on Monday, and weakened against the dollar. European bank stocks fell to three-year lows and yields on government bonds in Italy and Spain rose as investors sold bonds in favour of German Bunds.
The Greek stock market closed well over 6 per cent down.
Three Greek finance ministry officials told reporters the country might run out of cash by the end of June if it does not have a government in place to negotiate the next tranche of EU/IMF aid and projected state revenues fall short.
Eurozone leaders have so far done everything to avoid a Greek default and departure from the euro.
But public support for further bailouts is wearing thin in the eurozone’s triple-A rated lenders Germany, the Netherlands and Finland, raising doubts about their willingness to carry on supporting Greece.
Some European diplomats and economists have been predicting the possibility of Greece leaving the euro area for months.
Citi have raised their estimate of the chances of Greece dropping out of the currency zone over the next 18 months to 50-75 per cent.
Zsolt Darvas, an economist at Brussels think-tank Bruegel, said he saw a one-in-three chance of an unstable government being created in Greece.
“Such a government may stop servicing the country’s debt, including that (owed to) EU states. That would likely end the Greek membership of the euro zone,” Mr Darvas said.
“That would be horrible for Greece, with bank runs as well as massive personal and corporate defaults. The question then would be who could be next. How would the situation be resolved in Portugal and Ireland?”
Others said a weakening euro would help exporters and could boost growth.
One senior EU official said: “The Greek election result is a good thing – if it forces policymakers to realise that austerity is self-defeating and that Greece needs more debt-restructuring if it is going to stay in the euro, that’s positive.”