Greek leftist vows to reject loan terms

The head of Greece's radical left-wing Syriza party said Tuesday his cabinet will reject all austerity measures imposed under an EU-IMF loan deal, if he manages to form a new government.

"The public verdict has clearly nullified the loan agreement and (pledges) sent to Europe and the IMF," Alexis Tsipras said in a televised address.

The country's youngest political leader at 37, Tsipras was earlier given three days to form a government by the head of state, President Carolos Papoulias, after a similar attempt by the first-ranked conservative New Democracy party failed.

General elections on Sunday did not produce a clear winner but gave an overwhelming boost to Syriza which now has 52 deputies in parliament, making it the second biggest party.

The main parties that have pledged to continue deficit-cutting reforms, New Democracy and socialist Pasok, now only send a combined 149 MPs to the 300-seat parliament, not enough for a re-run of the outgoing coalition led by technocrat Lucas Papademos.

Tsipras called on the leaders of Pasok and New Democracy to renege on their pledges to international creditors, vowing to form an anti-austerity coalition with other leftist parties and abolish a spate of labour laws demanded by Greece's creditors to improve competitiveness.

"Citizens have crushingly voted against the barbaric policy of loan agreements. They put an end to plans for 77 new austerity measures in June, plans to lay off 150,000 civil servants, and to additional measures worth 11.5 billion euros ($15 billion)," he said in his address.

"This was a mature, conscious political choice," he said.

Even assuming that Syriza and other anti-bailout parties could overcome their gaping differences, they can only muster 151 votes, enough for just a razor-thin majority in parliament.

The Communist party, which has 26 seats, refused to cooperate on Tuesday.

Some constitutional experts have argued that a government could theoretically be backed by just 120 lawmakers depending on the number of deputies present on the day of the confidence vote in parliament.

Tsipras, who will probably not seek the prime minister's post for himself, said that banks should be placed under "national control" and a "moratorium" applied on loan repayments.

Syriza spokesman Panos Skourletis said the party would seek an understanding with Greece's EU peers on making the country's huge debt of over 350 billion euros sustainable.

A new government has to be formed by May 17 or new elections will be called.

The voters' verdict in Greece has alarmed markets.

The Athens stock exchange lost 3.77 percent in afternoon trading after shedding another 6.67 percent on Monday, with Paris shedding 2.78 percent, Frankfurt losing 1.90 percent and London ending 1.78 percent down.

And Greece's cost of borrowing jumped on Tuesday as it sought to raise 1.3 billion euros ($1.7 billionj) in a sale of six-month treasury bills, with it paying 4.69 percent to investors, up from 4.55 percent at the last equivalent sale on April 10.

The only option to forestall new elections, noted pro-socialist Ethnos daily, is for Syriza and the smaller Democratic Left party to settle on a joint candidate for prime minister which the third-seeded socialist Pasok party could support.

The political developments in Greece and also France, after presidential elections there on Sunday, stoked anxiety about the fate of the EU's tough fiscal pact adopted in March to end the eurozone's crippling debt crisis.

German Chancellor Angela Merkel, the chief proponent of austerity as the main way out of the crisis, said Monday it was "of utmost importance" that Greece stuck to its reform path, while conceding this was "difficult".

A European Commission spokeswoman said Brussels "hopes and expects" that the future government of Greece will respect its commitments.

Market analysts saw the verdict as added evidence that Greece will soon be exiting the euro.

"The failure of the Greek election to produce a new government provides some support to our view that Greece could leave the eurozone as soon as the end of this year," London-based Capital Economics said in a note.

The head of Fitch ratings agency said in an interview published on Tuesday that a Greek exit from the eurozone would not kill the common currency as Europe's paymaster Germany has too much invested in its survival.

"If the deutschemark were reintroduced, it would appreciate considerably against other currencies. Export industries, which are the motor of the German economy, would suffer," Paul Taylor said.

"Germany isn't going to tolerate that, even if one or more countries leave the eurozone."

And even if the pro-bailout parties gained a small majority, this would likely erode as economic conditions worsen, the group said.

The country, in its fifth year of recession with unemployment at 20 percent, is committed under the previous government to finding by June another 11.5 billion euros in savings over the next two years.

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