A caretaker government took office in Greece on Thursday to organise its second election in six weeks after an inconclusive May 6 vote as fears over a possible disorderly euro exit rocked Spain and Italy.
The May 6 election left Greece in limbo, pushing the financial markets and euro down sharply, and the new poll on June 17 offers no guarantee of a viable government able to implement an EU-IMF bailout which divided the country.
One opinion poll shows the radical leftist Syriza party, which wants to drop the deal and its austerity measures, in first place with 24.5 percent of the vote, up from its 16.78 percent showing on May 6 when it came second.
A Pulse poll for Pontiki satirical weekly said the conservative New Democracy party and the socialist Pasok, the mainstream parties who supported the EU-IMF debt rescue, would get 21.5 percent and 15.5 percent respectively.
European stock markets were weaker if off their lows in late afternoon trade, with Madrid and Milan down sharply after reports of a run on deposits at Spain's fourth largest lender Bankia hit the banks there and in Italy.
The euro hit fresh four-month lows against the dollar on fears the deteriorating situation in Spain, along with the problems in Greece and Italy, were making the debt crisis in the 17-nation bloc more difficult to resolve.
Reports earlier this week of withdrawals worth 700 million euros ($890 million) from Greek banks on Monday had rattled markets similarly but a banking source Thursday downplayed their importance.
From the May 6 polls to Monday, there had been withdrawals of 800 million euros, the source said, noting that in March there was an inflow of 1.0 billion euros, with April estimated at the same amount.
The source, who asked not to be named, also said that 18 billion euros in funds due under the bailout for the recapitalisation of Greek banks was expected by Tuesday or Wednesday.
The EU and the International Monetary Fund, all that stand between Greece and a disorderly default and eurozone exit, have warned that no new funds will be released if progress on pledged reforms and tough austerity measures falters.
The IMF announced Thursday that it would hold off on official contacts with Greece until after the June 17 elections.
"We look forward to being in contact with the new government once it has been formed," IMF spokesman David Hawley said.
The leaders of Germany, France, Italy and Britain and the EU's top officials will meanwhile hold a videoconference Thursday to discuss the eurozone and a G8 meeting this week, the British government announced.
"It's in preparation for the G8 but I do expect them to talk about the eurozone," a spokeswoman told AFP.
"A unilateral rejection of the country's contractual obligations would be disastrous for Greece, leading unavoidably outside the euro and possibly outside the European Union," he said in an open letter.
"The decisions we take could seal Greece's course for decades," said Papademos, who took over as head of a technocrat government in November to ratify and put in place the EU-IMF bailout accord.
The caretaker government sworn in Thursday is led by 67-year-old Panagiotis Pikrammenos, the head of Greece's top administrative court, and made up mainly of prominent university professors, a retired general and a diplomat.
"We must all work to steer the country to a safe harbour," Pikrammenos told the cabinet, adding that they would get no salary for their work and should set an example of frugality.
"The country must honour the obligations it has undertaken. It cannot abrogate its obligations without reason and cause a major crisis.
"We must not forget that all of Europe is watching us," he said.
Many Greeks are in despair after two years of salary and pension cuts, which instead of bringing promised economic benefits has left the country mired in recession for a fifth year, triggering strikes and sometimes violent protests.
Tsipras told the BBC that if the "disease of austerity destroys Greece, it will spread to the rest of Europe".
The turmoil has raised fears among Greece's international creditors that structural reforms pledged in return for the latest 240-billion euro bailout will be delayed or even scuppered.
The latest twist in the Greek crisis comes as the focus switched to struggling Spain where the government is desperately trying to shore up a crippled banking system amid concerns it may need outside help to do so.
Reports of the run on deposits saw Bankia shares plunge nearly 28 percent, while Italy's biggest bank UniCredit slumped more than 7.0 percent.
The eurozone debt crisis has so far claimed Greece, Ireland and Portugal but the fear is that Europe's current rescue mechanisms would not be able to cope with a Spanish bailout, especially if Italy were to be in trouble too.
Source: AFP Global Edition