Greek socialists make 'first step' towards coalition

Greek's socialist leader said Thursday he was making progress towards assembling a coalition government, but was still well shy of the parliamentary majority that has eluded two other parties.

Evangelos Venizelos, leader of the Pasok party, won the support of the small Democratic Left (Dimar) party in negotiations to form a cabinet after Sunday's inconclusive election witnessed an anti-austerity backlash by voters in the debt-laden nation.

"We have made a first step," Venizelos said, adding there had been a "good omen" in his meeting with Dimar leader Fotis Kouvelis.

Venizelos, whose party came a distant third at the polls with 41 seats, had earlier said he wanted to create a unity government that would keep Greece in the eurozone -- an aim echoed by Kouvelis.

Venizelos, 55, has scheduled talks with his main rivals and former coalition partners, the conservative New Democracy party, for 0700 GMT on Friday.

The former finance minister acknowledged his task was "not easy".

His efforts follow consecutive post-election failures this week by the first-placed conservative New Democracy party and the runner-up, the radical leftwing Syriza which had come out strongly against the tough spending cuts.

A fresh setback would result in President Carolos Papoulias calling on parties to form an emergency coalition. If that cannot be be done by May 17, new elections for the 300-seat parliament will be called.

Voters on Sunday punished Pasok and New Democracy for having pushed through severe austerity measures in return for multi-billion-euro international loans to stave off bankruptcy and keep Greece in the eurozone.

However, many still believe repeat elections are almost certain.

"We will probably have elections in two months" even if a cabinet is formed, said Communist party leader Aleka Papariga.

The European Union is sending a strong message that Greece must honour the bailout conditions of budget cuts and deep reforms, after Venizelos and New Democracy leader Antonis Samaras advocated renegotiating the deal to boost growth.

Creditors have warned that a rescue loan instalment to be paid on Thursday could be the last if Athens reneges on its reform commitments, raising questions over the future of Greece in the 17-member eurozone.

German Chancellor Angela Merkel said on Thursday in a speech to lawmakers in Berlin that there was no "magic bullet" to resolve Europe's debt crisis.

Her comments were aimed mainly at incoming French president Francois Hollande's insistence on a growth-based model as a response to the crisis, but also at Greece, whose leaders have seized on Hollande's election last week as leverage in their demands for a renegotiation of their bailout terms.

Hollande and Merkel were to meet in Berlin on Tuesday within hours of his inauguration.

A senior EU official said Thursday that the EU-IMF bailout and austerity programme agreed with Greece is non-negotiable.

"The large and small print of the memorandum of understanding are as they are and they have been negotiated," the official said on condition of anonymity.

"I would not use the words that every comma is non-negotiable but the MOU as such is non-negotiable."

Greece was due to receive a 4.2-billion-euro loan as expected on Thursday, but a further one billion is being held back until Monday.

In London, British bookmakers Ladbrokes and William Hill said they had suspended betting on whether Greece will leave the eurozone.

"We have decided to take down these markets until the situation calms down a little," said William Hill spokesman Graham Sharpe.

The Athens stock exchange kept a brave face Thursday, closing with gains of 4.19 percent.

US stocks mostly bounced back slightly after a six-day losing streak, amid hopes that the moderate Pasok socialists might be able to form a government.

Stocks started out of the gate with strong gains after the failure of the extreme leftist Syriza party to build a coalition.

Sunday's election slashed Pasok and New Democracy's combined seats in parliament from 201 to 149, including a 50-seat bonus for New Democracy for being the largest party.

The other 151 seats are held by parties that campaigned against the austerity programme, from far-left groups such as the communists and Syriza to the neo-Nazi Golden Dawn, which won 21 seats.

Golden Dawn's triumph in a country that suffered the ravages of Nazism has caused shock both inside and outside Greece.

On Thursday, the group's website was no longer running, with operator wordpress.com saying it had been "archived or suspended" for violating terms of service.

A journalist at the liberal Kathimerini this week said she had been threatened by a Golden Dawn site contributor after writing a critical article about the group, which has pledged to "scour" Greece of migrants.

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