By ELENA BECATOROS, Associated Press
ATHENS, Greece (AP) — Greece sank deeper into a political and financial morass on Monday as initial efforts to form a new coalition government failed a day after angry voters punished parties backing the country's international bailout.
The result of Sunday's parliamentary election raised troubling new questions about Greece's ability to stay solvent and in the euro currency bloc. And the political impasse means Greece could face another round of elections next month.
Voters furious over years of painful budget cuts and higher taxes hammered the conservative New Democracy and socialist PASOK, the two parties who have dominated politics for the last four decades and who had signed up to the country's multibillion dollar bailouts.
The result was a clear anti-austerity message. Smaller parties that had rejected the draconian terms of Greece's rescue packages made significant gains, raising the possibility that they might push the country out of the euro.
They included the extremist Golden Dawn party, which rejects the neo-Nazi label but has been blamed for violent attacks against immigrants. The party won 21 seats in the 300-member parliament, and nearly 7 percent of the vote.
No party won nearly enough votes to form a government, leaving a coalition government or new elections as the only options.
New Democracy's Antonis Samaras, who came in first with a meager 18.8 percent of the vote and 108 seats, failed to build a coalition and handed back the mandate to the president.
"We did everything possible," Samaras said in a televised address. "We directed our proposal to all the parties that could have participated in such an effort, but their either directly rejected their participation, or they set as a condition the participation of others who however did not accept."
The uncertainty caused huge volatility in financial markets across Europe. The Athens exchange closed 6.7 percent down.
And Greece's bailout creditors appeared alarmed, stressing Athens must stick to its commitments.
"Of course the most important thing is that the programs we agreed with Greece are continued," said German Chancellor Angela Merkel.
Her remarks were echoed by a European Commission spokesman, Amadeu Altafaj Tardio, who stressed the need for "full and timely implementation" of Greece's agreement with its international creditors and underlined that "solidarity is a two-way street."
Now that Samaras has failed to create a government, the mandate goes to Alexis Tsipras, the 38-year-old head of the Radical Left Coalition, or Syriza, who came in second place with 16.78 percent and 52 seats.
Tsipras will officially be tasked to seek coalition partners Tuesday and will have three days to clinch a deal before the mandate then passes to former finance minister and PASOK head Evangelos Venizelos.
If no agreement can be found new elections will be called, probably for June.
The timing is critical. Greece has to introduce new drastic austerity measures worth €14.5 billion ($19 billion) for 2013-14 in June, while the country is also due to receive a €30 billion ($39.4 billion) installment of its rescue loans from the other countries in the 17-strong eurozone and the International Monetary Fund.
If rescue loan funding is cut off, the country will find itself unable to pay salaries and pensions, and would face defaulting on its debts and potentially leaving the euro.
"I still don't think they're quite to the stage where they will say this is the red line, if you can't meet it we won't give you more support," said Raoul Ruparel, an analyst at the Open Europe think tank in London.
In that case, Greece could get "a trickle of funding," enough to give them a chance to form a stable government.
Still, Ruparel said patience among other European leaders is wearing thin and a new Greek government could — depending on who forms it — become intent on renegotiation.
"You could very well see an increasingly hard line taking place on both sides," he said.
That is a distinct possibility, considering the views of formerly small parties that won a large slice of the seats in parliament.
Tsipras insists the country should reject the international loan agreement outright, and has very little common ground with Samaras.
"The campaign positions of Mr. Samaras are at the opposite end of the alternative proposals of a left-wing government," he said.
He noted he would not back a coalition with the conservatives, as Samaras' support for the bailout agreement constitutes "a tragedy for the people and the country."
PASOK, which came a humiliating third two and a half years after a landslide election victory, expressed willingness to join in a coalition and said it would not demand government positions. Venizelos, who as finance minister negotiated Greece's second bailout and a massive debt relief deal, said Syriza and the smaller Democratic Left party of Fotis Kouvelis should be involved in any new government.
"It is necessary for the government of national unity to include all the forces that have a pro-European outlook," Venizelos said after meeting Samaras. "The minimum level of agreement is that Greece remains in the euro."
For his part, Kouvelis — a pro-European leftist critical of the bailout — indicated he was open to participating in a coalition government. Kouvelis, who strongly favors Greece remaining within the euro, won 6.1 percent of the vote, and his 19 parliamentary seats make him a potential king-maker for any future government.
"For the Democratic left the conditions are two-fold for a government to have popular legitimacy: It must safeguard the country's position in the euro and must proceed to disentangle it from the conditions of the loan agreements," he said.
"We await clear and specific proposals, and we will respond with our position accordingly."
Derek Gatopoulos and Nicholas Paphitis in Athens, and David McHugh in Frankfurt contributed