Greek rivals near coalition, seek bailout revision

ATHENS (Reuters) - Greece's conservatives and socialists edged towards a deal on a new government on Tuesday that would seek concessions from the country's lenders on its punishing austerity program, and the euro zone signaled it was ready to negotiate.

Both the conservative New Democracy party, which narrowly won elections on Sunday, and PASOK Socialists expressed hope that a government backing Greece's bailout agreement with the EU and IMF - albeit with easier terms - could be sealed on Wednesday.

PASOK leader Evangelos Venizelos said his party would "whole-heartedly" support a government led by New Democracy, and would decide on Wednesday precisely how to do this. "As we stand now, it (a government) could be formed by midday (0900 GMT) tomorrow," he said in a televised statement.

A New Democracy official also told Reuters: "It's possible we'll have a coalition announced in the morning." However, a party official had predicted 24 hours earlier that a deal would be done on Tuesday and none materialized.

PASOK is expected to join a New Democracy-led coalition, but has previously raised the possibility of a looser alliance such as supporting a minority government.

Whatever its exact form, such an alliance would bring together arch rival parties which alternated in office from the fall of military rule in 1974 until last year, when Greece's economic crisis forced them to share power in a short-lived national unity government.

The small centre-left Democratic Left party was also set to approve participation late on Tuesday, a party official said.

The state-run Athens News Agency reported that New Democracy leader Antonis Samaras would meet Venizelos at 0500 a.m. EDT on Wednesday and Democratic Left leader Fotis Kouvelis at 0600 a.m. EDT.

All three parties want to soften the terms of the EU/IMF rescue deal which is keeping Greece from bankruptcy, as the country has rising social tensions and an emboldened anti-bailout opposition after more than four years of recession and with unemployment at almost 23 percent.

Euro zone paymaster Germany, the biggest contributor to the rescue, opposes major changes to an austerity drive that has worsened Greece's economic depression.

But a senior euro zone official said on Tuesday that trying to enforce the original terms of the 130 billion euro ($165 billion) bailout as the Greek economy slides deeper into trouble would mean "signing off on an illusion".

Samaras, who narrowly beat the radical leftist SYRIZA bloc on Sunday and is expected to lead the new government, has called for a two-year extension to the 2014 deadline set for Greece to meet budget targets under the bailout package.

He also campaigned on promises to cut taxes and raise unemployment benefits and pensions.

DEAD LETTER

Venizelos called for the creation of a "national negotiating team that will deal with revision of the harsh terms of the bailout deal".

The call followed an election fought largely over whether to stick to the bailout deal or scrap it. SYRIZA argued it was a dead letter, while New Democracy said that to reject it outright would send the country out of the euro and back to the drachma.

With SYRIZA and its charismatic 37-year-old leader Alexis Tsipras defeated, Greece's European partners indicated they could give a New Democracy-led coalition some leeway after all.

The senior euro zone official said the bailout's Memorandum of Understanding (MoU) with Athens had to be renegotiated. The official said circumstances had changed in Greece, which lapsed into political paralysis when elections in May produced a stalemate, forcing Sunday's re-run.

"Anybody who would say that we need not, and cannot renegotiate the MoU is delusional, because he - or she - would be under the understanding that the whole program, the whole process, has remained completely on track ever since the weeks before the Greek first election," the official said.

With austerity and privatization programs hit by the political paralysis, and tax receipts dwindling as the economy shrinks further, the official dismissed the idea of not revising the deal.

"We would be signing off on an illusion. So we have to sit down with our Greek colleagues and say: this is where we should be in July, and this is where we are in July...," the official said.

There is still likely to be a big gap between what Greece's new government asks for, and what its lenders in the European Union and International Monetary Fund would be prepared to give. "The new government must stick to its commitments," German Chancellor Angela Merkel warned on Monday.

"WEAK COALITION"

SYRIZA's Tsipras said the talk of renegotiation showed his bloc had been vindicated, and it was just a matter of time before the party came to power. "What SYRIZA has been saying all along is that the bailout plan is not viable and cannot go on," he told Reuters in his first interview since the election. "Now they all recognize this.

In a sign Greeks have regained some confidence that the danger of an immediate departure from the euro zone has eased, banks reported that some deposits withdrawn by nervous savers before the election appeared to be trickling back.

Samaras voted against Greece's first 110 billion euro bailout in 2010 and only reluctantly signed up to the second, frustrating European leaders scrambling to stem the debt crisis now engulfing Spain and Italy.

The 61-year-old Harvard-educated Samaras, the scion of one of Greece's most prestigious families, was given three days to form a coalition by the Greek president on Monday.

New Democracy took a 50-seat bonus under Greek electoral law for coming first, and a New Democracy-PASOK alliance would have 162 seats, a majority in the 300-seat parliament. Adding the Democratic Left would give it 179 seats.

A new government still faces the daunting prospect of imposing further austerity cuts on a nation divided over the price of bailout funds and with SYRIZA, which has been lifted by a wave of public anger against the old parties, in opposition.

"It will be a very weak coalition," said Nikos Konstandaras, managing editor of leading conservative daily Kathimerini, adding that New Democracy and PASOK had a history of mutual mud-slinging and of little cooperation.

"The irony is that Samaras undermined the bailout," he told Reuters. "We're now relying on the same people who sabotaged it to make it work."

(Additional reporting by Jan Strupczewski in Brussels and Renee Maltezou, George Georgiopoulos, Karolina Tagaris, Greg Roumeliotis, Dina Kyriakidou, Michael Stott and Paul Ingrassia in Athens; Writing by James Mackenzie and Matt Robinson; editing by David Stamp)

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