Greece inches towards three-party coalition

Greece inched towards a three-party coalition today under fierce pressure from financial markets and world powers after a pro-euro party won elections on a surge of anger over austerity.

The New Democracy conservatives were negotiating a possible coalition with Pasok socialists and the Democratic Left party after clinching a narrow victory against the radical leftist Syriza which wants Greece's EU-IMF bailout deal torn up.

The three parties "are drawing closer" to a deal, New Democracy spokesman Yiannis Michelakis told Real radio.

Pasok leader Evangelos Venizelos has voiced hope that a coalition will be announced later on Tuesday and Democratic Left leader Fotis Kouvelis said that it was possible "within the next few hours, if we reach agreement".

Kouvelis is convening his party to decide on the issue at 2130 IST.After meeting with Kouvelis, Venizelos said coalition talks were being "sped up" and added: "Greece must and will have a government as soon as possible."

New Democracy chief Antonis Samaras, a 61-year-old former foreign minister educated at Amherst and Harvard in the United States, won 129 of the 300 parliamentary seats on Sunday, Syriza won 71, Pasok 33 and Democratic Left 17.

The results of Greece's most important elections since the end of military rule in 1974 eased fears of an immediate euro exit but any new government faces a potential stand-off with its EU-IMF creditors over the terms of the bailout.

Greek borrowing costs dipped slightly in a three-month treasury bill auction today, its first since the election.

The Greek debt management agency said it had raised 1.3 billion euros (USD 1.6 billion) at an interest rate of 4.31 per cent, lower than the 4.34 per cent at a previous equivalent sale on May 15.

The Greek state has stepped up short-term debt auctions to restock its depleted treasury, holding one a week.  

Before the election, the finance ministry had reportedly warned there were only enough cash reserves to pay public sector salaries and pensions until July 20, and the European Union and the International Monetary Fund have suspended loans until a government is formed.

Europe and the United States have urged Greece to move quickly to form a new government and enact the reforms it has agreed to in return for the loans.

Key creditors like Germany have held out the possibility of extending a key 2014 deficit-cutting deadline but say the content of the deal cannot be changed.

"There cannot be rebates, there cannot be deductions," German Economy Minister Philipp Roesler said after talks at the White House in Washington.

"The agreed-upon objectives must be achieved," he said on Monday.Under the current conditions, Greece has to cut 11.5 billion euros -- the equivalent of five percent of its gross domestic product -- by 2014 although Greek parties want this deadline to be extended to 2016.

Eurogroup chief Jean-Claude Juncker on Tuesday said extensions to the fiscal timeframe could be considered but substantial changes are out of the question.

"There can be no discussions about changing the substance of the agreements but as I indicated three or four weeks ago we can by all means talk about extensions to the timeframe," Juncker told Austrian radio.

But ahead of talks among eurozone finance ministers in Luxembourg on Thursday, a senior European Union official said it would be "delusional" and "stupid" to keep the loan agreement intact as the economic environment had deteriorated both inside and outside Greece.

"It is delusional to say we cannot or need not re-negotiate the Greek programme," the official said on condition of anonymity.