Greek party deal on new crisis premier collapses

ATHENS (Reuters) - A deal on forming a Greek national unity government collapsed on Wednesday as the country headed toward an economic abyss, hours after outgoing Prime Minister George Papandreou said he was handing over to a coalition that does not exist.

In a day that was bizarre and chaotic even by Greek political standards, Papandreou wished his successor well and headed off to meet the president -- only for it to emerge that there was no successor due to feuding in the political parties.

Earlier, party sources said senior members of the socialist and conservative camps had settled on the speaker of parliament, veteran socialist Filippos Petsalnikos, barring last-minute snags.

But snags did indeed emerge, with large sections of Papandreou's PASOK party and the conservative New Democracy refusing to back Petsalnikos after a three-day hunt for someone to lead the coalition until early elections in February.

One analyst said the Greek democracy was going through its worst moment since a military dictatorship was overthrown 37 years ago, and only now would serious negotiations begin.

"I believe the prime minister's responsibility is huge, relations between the political parties and society are so tense that I believe elections and big political changes are inevitable," said Costas Panagopoulos, head of pollsters Alco.

"I feel that the substantial discussion has just started and all these days we have been witnesses to a farcical comedy."

Greeks and the nation's international lenders have watched in growing horror for three days as party leaders feuded over a shrinking list of credible candidates to lead the national unity coalition after Papandreou's government imploded.

Greece will run out of money next month unless the new government agrees emergency funding with the European Union and International Monetary Fund, Greece's last remaining lenders, including a 130 billion euro bailout.

BRING BACK PAPADEMOS

Some lawmakers said the parties would have to return to an earlier plan -- apparently stalled -- of recruiting Lucas Papademos, a former vice-president of the European Central Bank, to head the new government as a technocrat and give it the credibility that politicians lost long ago.

"The only solution is Papademos. If he accepts by tomorrow morning we will be able to form a strong government that will pull the country out of the crisis," Socialist lawmaker Spyros Vougias told Reuters.

Papandreou and New Democracy leader Antonis Samaras began talks with President Karolos Papoulias on a new coalition to save Greece from bankruptcy. But before leaders of smaller parties could join them to seal the coalition, the talks were abruptly halted.

The president's office said a meeting of party leaders would be held at 0800 GMT on Thursday, although in the current chaotic atmosphere political talks are often delayed or fail to happen at all.

Party sources said some lawmakers saw Petsalnikos as a pawn of Papandreou, and attacked him for supporting the prime minister's failed plan to call a referendum on the bailout, which brought his socialist government to its knees.

"We wanted a strong a man who could handle all the economic issues," a socialist lawmaker said on condition of anonymity. "This candidacy is so close to Papandreou's policies, it does not signal the change the Greek people wanted."

Greece must have a new coalition to secure the bailout, negotiate the release of emergency funds from the EU and IMF to avoid bankruptcy when big debt repayments come due in December and safeguard its place in the euro zone.

For its part, the European Union needs to put out the fire in Greece to prove to international financial markets that it can tackle another blaze in Italy, a far bigger economy also in economic and political crisis.

In an emotional television address, supposed to be his last to the nation as premier, Papandreou also said a new government would win approval for the bailout and secure Greece's membership of the euro zone.

"I am proud that, despite the difficulties, we avoided bankruptcy and ensured the country stayed on its feet," he said. "I want to wish the new prime minister success, I will support the new effort with all my strength.

"Today, despite our differences -- political and social differences do exist -- we have put aside our fruitless conflict and disagreement," Papandreou said shortly before the deal on Petsalnikos unravelled.

With Greeks and the European Union clamouring for an end to the game of political cat-and-mouse, the central bank governor earlier made a rare intervention to say a new coalition was imperative for securing the euro zone bailout.

"The uncertainty is hurting the economy and the banking system," Bank of Greece governor George Provopoulos told Reuters. "There must be a strong government that will work hard to ensure the country's future in the euro zone."

GREEKS WANT EUROS -- IN CASH

Greeks have pulled their savings from banks over the past week because of the deepening political crisis and fear of an exit from the euro, banking sources said. [nL6E7M94KI]

They withdrew as much as 5 billion euros -- nearly 3 percent of total deposits -- after Papandreou's shock call last week for a referendum on the euro zone bailout, said one banker, who declined to be named.

"Many people withdrew their money from banks on Thursday and Friday and money couriers had a hard time supplying banks with cash to satisfy the emergency demand," said another banking source, who also requested anonymity.

Papandreou provoked uproar with the plan, due to the likelihood voters would have rejected the package, pushing Greece into bankruptcy and casting doubt on its future in the euro. Under intense pressure from home and abroad, he backed down but was forced to make way for the unity coalition.

Many wealthy Greeks moved their money into foreign banks last year as the crisis deepened. Now other people are demanding sometimes large amounts in euro banknotes, fearing that any bank savings might be converted into devalued new drachma if Greece is forced to revert to its old national currency.

"We got to the point where customers ordered amounts of up to 600,000 to 700,000 euros in cash to take home -- unbelievable," the first banker said.