Greece faces euro exit after Left says bail-out dead

Greece was a step closer to leaving the euro last night (Wednesday) after the hardline Leftist charged with forming a government declared the bail-out dead as coalition talks broke down.

Germany led warnings to Alexis Tsipras that next month's euros 5?billion (pounds 4?billion) instalment of the rescue plan would not be paid if the political turmoil in Athens continued.

Mr Tsipras dismayed officials in Brussels by stating in writing that the euros 130?billion rescue plan had been rejected as unacceptably harsh by the Greek people.

A default would almost certainly set the country on a path to leave the currency.

No party gained more than 20 per cent in Sunday's election but Mr Tsipras emerged from obscurity to take second place. However, his attempts to form an anti-bailout government failed after Evangelos Venizelos, leader of the socialist Pasok party, said he had been unable to form a coalition with Mr Tsipras.

The third-placed Socialists said they would take over talks to form a new government in a last ditch effort before a fresh election is called for mid-June.

Senior figures in Germany, the biggest contributing country to the bail-out, reacted firmly to the strident statements by the 37-year-old former Communist contained in a letter to Brussels.

Even if Mr Tsipras cannot fashion a coalition, his party could come first in the next election or do well enough to form a Left-wing coalition intent on tearing up the bail-out and nationalising Greek banks.

Klaus-Peter Willsch, a close ally of Chancellor Angela Merkel, said: "We should offer Greece a controlled exit from the eurozone, without withdrawing from the European Union. The dogma that no country is allowed to leave the eurozone has already caused too much damage to European policy."

Guido Westerwelle, the German foreign minister, warned that the next loan to Greece could be withheld if it failed to keep its promises, which include identifying another euros 11?billion in savings by next month. "If Greece ends the reform process it has undertaken, then I can't see that the respective tranches [of aid] can be paid out," he said.

More than 70 per cent of Greeks want to stay in the euro, but a similar proportion voted for parties that opposed the memorandum of understanding between the government and its creditors that required drastic government budget cuts and higher taxes in exchange for the loans.

Mr Tsipras is due to meet President Carolos Papoulias today at which point he is expected to report that he cannot secure sufficient backing among MPs. While the talks he has hosted have made little headway, he has used the three-day period allotted to his party to set out his agenda.

Riding high on a surge of anti-austerity sentiment in Greece and France, the charismatic Mr Tsipras even sought a meeting with Francois Hollande, the French socialist president-elect. Reports said Mr Tsipras was rebuffed on grounds of protocol because he is merely a party leader and not head of state.

Antonis Samaras, the leader of New Democracy, Greece's largest party, said that Mr Tsipras's denunciation of the bail-out was "irresponsible" and "will lead to immediate internal collapse and international bankruptcy, with the inevitable exit from Europe".

The political veteran was the first leader invited to form a coalition, after finishing first with only 20 per cent, but gave up within hours on Monday.

The risk of Greece leaving the euro by the end of 2013 has risen to 75 per cent, according to Citigroup analysts.

A senior ally of Mr Tsipras suggested that Greece's creditors would not force it to the wall. "Our wish to stay in the eurozone is our biggest single negotiating tool," said Yiannis Bournous. "There is no European treaty that allows for one country to be kicked out."