Bond yields edge above seven per cent in Madrid, despite generally positive reaction from markets to pro-bailout vote.
Greece is engaged in second day of coalition talks under pressure from financial markets and world powers after elections won by pro-euro parties that also reflected rising anger against austerity.
The New Democracy conservatives who came first in the elections said they had struck a preliminary agreement with the socialists PASOK to form “a government of national salvation” to rescue Greece from its devastating economic crisis.
PASOK has voiced hope for a deal later on Tuesday but insists that the new government should include other parties including the leftist Syriza, which has already ruled out taking part in any New Democracy-led coalition.
Greece’s victorious conservative leader has pledged to soften the debt-laden country’s punishing austerity programe despite opposition from Germany.
A brief relief rally on international financial markets after Sunday’s Greek vote quickly fizzled out as it became clear that Antonis Samaras’s New Democracy had failed to win a convincing popular mandate to implement the deep spending cuts and tax increases demanded by the European Union and the IMF.
Syriza and a host of smaller parties opposed to the punishing conditions attached to the $164.12bn bailout won around half the votes cast, though fewer seats because the electoral system rewards the first placed party disproportionately.
Samaras received a mandate to form a coalition government from the president on Monday, and said the country would meet its bailout commitments.
But he said: “We will simultaneously have to make some necessary amendments to the bailout agreement, in order to relieve the people of crippling unemployment and huge hardships.”
Al Jazeera’s Andrew Simmons, reporting from Athens, whose atmosphere he compared to that of a “tinderbox”, said any new government would have to contend with deep-seated political and demographic divisions.
“The real worry is that if there’s a weak government, Syriza is going to weigh in and bring it down,” he said.
He said that a government would likely be formed and that there was unlikely to be a repeat of the standoff that followed the May elections.
|Greece’s caretaker government says the state has
enough cash to last a few weeks [AFP]
Evangelos Venizelos, PASOK head and a former finance minister, finished in the election behind Syriza.
But his 33 seats in the 300-member parliament mean he could form a government with New Democracy, which gained 129 seats.
Syriza has refused to join the other two parties in a government, saying it will not cooperate with any group that insists on implementing the harsh austerity measures taken in return for Greece’s two international bailout agreements.
Venizelos, however, insisted on a broad coalition.
“The most crucial thing for us right now is to achieve the greatest possible range of consensus, and this must happen by tomorrow night at the latest,” he said after meeting with New Democracy head Antonis Samaras, who as election winner has the first go at trying to form a government.
Venizelos criticized Syriza chief Alexis Tsipras for his refusal to join in governing Greece, which has been wracked by a financial crisis that has left it dependent on international loans since May 2010.
“You can’t have some people choosing the easy position of being in opposition and lying in wait for the government to fail – or rather trying to create the conditions for the government, that is the country, to fail,” Venizelos said.
On the streets of Athens, the mood was mixed, with many saying party leaders must get their act together.
“The election result isn’t strong enough to put people’s minds at ease,” said sandwich shop owner Mary Moutafidis, 57. “They still have to agree to form a government.”
Greece’s economy is forecast to contract five per cent this year after shrinking seven per cent last year.
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Protests regularly choke the centre of Athens, some hospitals are running short of medicines, thousands of businesses have closed and beggars and rough sleepers are multiplying.
During the election campaign, Samaras called for cuts in taxes, rises in unemployment benefits, pension rises and two more years to meet fiscal targets.
But Germany, already irritated at what it sees as the slow pace of Greek reform, ruled out more than minor delays to some targets in the rescue package – Greece’s second since 2010.
Chancellor Angela Merkel, speaking at a meeting of G20 leaders in Mexico, said any loosening of Greece’s agreed reform pledges would be unacceptable and reiterated that Athens had to stick to the commitments it had already made.
Samaras voted in 2010 against the first 110bn euro rescue because he thought it was too harsh. He now says Greece should have until 2016, not 2014, to meet fiscal targets set by under the bailout. His most likely ally, Socialist PASOK leader Evangelos Venizelos, wants a further year to reform.
The small Democratic Left party indicated it would also be ready to support Samaras if the bailout deal could be softened. Samaras and Venizelos began talks at 15:00 GMT.