Greece hits political stalemate, euro exit fears grow

"I think that is an impossible equation and I think in that sense it is an irresponsible statement," said Finland's Minister for European Affairs Alexander Stubb.

(Reuters) - Greece's president met little enthusiasm from political leaders summoned to a final round of talks on Monday to avert a new election, reinforcing fears the country was firmly on the path to bankruptcy and an exit from the euro zone.

European shares slid and Spanish and Italian bond yields rose as the political deadlock threatened to reignite the euro zone debt crisis. Greek banking stocks tumbled 7 percent.

Greece's political landscape has been in disarray since an inconclusive election on May 6 left parliament divided between supporters and opponents of a 130 billion euro ($168.3 billion) EU/IMF bailout, with neither side able to form a government.

After Sunday's effort at cajoling party leaders into a coalition proved fruitless, President Karolos Papoulias summoned four party leaders for a fresh round of talks on Monday evening.

But the talks appeared doomed long before they began, as the young leader of the radical leftist SYRIZA party said he would not attend and another leftist leader refused to take part in any coalition unless SYRIZA was on board.

Papoulias must call a new election if he fails to engineer a compromise. Such a poll is expected to be held in mid-June.

With Greece set to run out of money as early as next month and no government in place to negotiate the next aid tranche, investors have begun betting that a long-speculated Greek default and euro exit will happen sooner rather than later.

European paymaster Germany appealed to Greeks to build a viable government, but acknowledged that the country was in a difficult situation.

The prospect of national bankruptcy and a return to the drachma appeared to be slowly sinking in among Greeks, who must now choose between the pain of spending cuts demanded in return for aid and an even more painful existence outside the euro.

"We have to stay in the euro. I've lived the poverty of the drachma and don't want to go back. Never! God help us," said Maria Kampitsi, 70-year old pensioner, who had to shut down her pharmacy two years ago due to the crisis.

"They must cooperate or we'll be destroyed, it will be chaos. For once, they must care about us and not their chair."

"IMPOSSIBLE EQUATION"

Capturing the self-defeating nature of an election that has drawn the country towards bankruptcy, the Ta Nea daily ran a front page picture of a man shooting himself and blood splattered across the backdrop in the shape of Greece.

"SYRIZA has paved the way for new elections. And this time, whether we like or not, they will be more like a referendum. We will have set ourselves the question whether we prefer the euro or the drachma," centre-left daily Ethnos wrote in an editorial.

SYRIZA, which polls suggest would come first if elections were held again, said on Monday it was willing to take part in one-to-one talks with the president or talks that included all parties except the far-right Golden Dawn party.

But it was unclear what difference that would make and the president's office said it was not changing its plans for Monday's meeting.

European leaders have reacted with growing disbelief to the rhetoric from the party's 37-year-old leader Alexis Tsipras, who has promised Greece can simultaneously renege on the terms of its bailout and stay in the euro zone.

"I think that is an impossible equation and I think in that sense it is an irresponsible statement," said Finland's Minister for European Affairs Alexander Stubb.

"We fully realize that the precondition for Greece staying in the eurozone is for it to fulfill the engagements that it has made to the IMF, to the European Central Bank and to the commission."

In a sign of the shifting European mood on Greece and a growing sense that its exit from the euro is manageable, European officials who once refused to discuss a Greek exit now talk about it openly as a real, if painful, possibility.

But none of this has fazed Tsipras, who has gone from strength to strength on his pro-euro and anti-bailout message to become the unexpected Greek political star of the moment.

The anti-bailout vote that was divided among small parties but has now rallied behind Tsipras, who stands to get a bonus of 50 extra seats in the 300-seat parliament if he wins a repeat election - raising the possibility of an anti-bailout coalition.

Tsipras has consistently refused to join a coalition government with the establishment conservative and socialist parties that ruled Greece for decades, but were punished by voters last week for their role in agreeing the EU rescue, which requires deep cuts in wages and pensions.

That has helped push Greece into its fifth year of recession, which in turn has left one out of five Greeks jobless and ushered in an increasingly volatile social climate.

Three gas canisters exploded at tax office in an Athens suburb early on Monday, causing minor damages, police said.

Any coalition without the conservatives and socialists would have to combine the far-right and far left, which both have ruled out.

($1 = 0.7726 euros)

(Additional reporting by Tatiana Fragou and Lila Chotzoglou; writing by Deepa Babington; editing by Philippa Fletcher)