ATHENS/PARIS, May 15 (Reuters) – Attempts to form a government in Greece collapsed on Tuesday, jolting financial markets at the prospect leftists opposed to the terms of an EU bailout could sweep to victory and nudge the euro zone crisis into a dangerous new phase.

The turmoil in Athens sent waves around other troubled members of the 17-nation European single currency area. The euro slipped below $1.28 while Spanish and Italian bond yields rose above the danger level of 6 percent as investors scurried for shelter in safe haven German Bunds.

The tremors from Greece, compounding worries about Spain’s debt-laden banking system, ended any honeymoon for new French President Francois Hollande, thrusting the growing risks to the euro zone to the top of the agenda for his first meeting with German Chancellor Angela Merkel hours after he took office.

In his inaugural address, the Socialist president called for a European pact to revive growth and temper German-driven austerity measures, seeking to change the direction of euro zone economic policy.

“I will propose to our partners a pact that will tie the necessary reduction of our public debt to the indispensable stimulation of our economies,” Hollande declared, saying Europe needed “projects, solidarity and growth”.

In Athens, a spokesman for President Karolos Papoulias said his efforts to broker a compromise on a cabinet of technocrats to steer the country away from bankruptcy had failed, nine days after an inconclusive general election. A caretaker government will now be formed pending a new vote probably in mid-June.

“For God’s sake, let’s move towards something better and not something worse,” Socialist leader Evangelos Venizelos told reporters after party leaders met the head of state.

PARIS/BERLIN, May 15 (Reuters) – New French President Francois Hollande called for a European pact for growth to balance out German-driven austerity measures in his inaugural address on Tuesday, hours before taking his challenge to Chancellor Angela Merkel in Berlin.

Sworn in with all the pomp of the French Republic, Hollande won support from Germany’s opposition Social Democrats (SPD), who vowed to use their parliamentary blocking power to delay ratifying a European budget discipline treaty until Merkel accepts accompanying measures to boost growth and jobs.

“I will propose to our partners a pact that will tie the necessary reduction of our public debt to the indispensable stimulation of our economies,” the Socialist president said in his 10-minute maiden speech.

Hollande’s inauguration with military honours, capped by an open-topped motorcade ride up the Champs Elysees to the Arc de Triomphe in torrential rain, marks a potential turning point in the euro zone’s debt crisis amid a deepening political crisis in Greece, Europe’s most pressing debt headache.

Euro zone finance ministers dismissed talk of Greece leaving the 17-nation currency area as “propaganda and nonsense” on Monday. But with the country facing the likelihood of a repeat general election that leftist anti-bailout parties believe they can win, speculation about a possible Greek exit is rattling financial markets and won’t go away.

In Athens, Greek President Karolos Papoulias met party leaders on Tuesday to make a final plea for politicians to stand aside and let a government of technocrats steer the nation away from bankruptcy.

But the left-wing SYRIZA party, which surged to second place in last week’s general election on an anti-austerity platform, has already rejected the proposal and looks set to force a new poll next month, prolonging market uncertainty.

PARIS (Reuters) – Americans call it a Rube Goldberg machine, Britons a Heath Robinson contraption and the Danes a Storm P machine.

The European Union’s policy-making system often resembles one of those cartoon designs of an implausibly convoluted system for achieving a simple task – held together by sticking plaster, string, frequent tinkering and plenty of wishful thinking.

What is striking when you compare Europe’s policies on agriculture, monetary union and climate change is the similarity of the way the EU keeps bolting on patches and extra wiring to try to fix problems created by its own solutions.

Over the last five decades, the EU has set out to achieve a set of worthy goals by regulating markets – self-sufficiency in food, currency stability, fighting climate change.

Each of these policies created perverse incentives or what economists call “moral hazard”, causing unintended consequences such as grain mountains and wine lakes, real estate bubbles and debt overhangs, and the collapse of the carbon price.

When things go off the rails, the EU reflex is never to question or scrap the policy, since political dogma, vested interests and institutional inertia rule out going back on what in Eurospeak is called the “acquis” – European achievements.

The default response is always “more Europe”, although not necessarily the most straightforward solution, which is often fenced around with political vetoes.

PARIS (Reuters) – Americans call it a Rube Goldberg machine, Britons a Heath Robinson contraption and the Danes a Storm P machine.

The European Union’s policy-making system often resembles one of those cartoon designs of an implausibly convoluted system for achieving a simple task – held together by sticking plaster, string, frequent tinkering and plenty of wishful thinking.

What is striking when you compare Europe’s policies on agriculture, monetary union and climate change is the similarity of the way the EU keeps bolting on patches and extra wiring to try to fix problems created by its own solutions.

Over the last five decades, the EU has set out to achieve a set of worthy goals by regulating markets – self-sufficiency in food, currency stability, fighting climate change.

Each of these policies created perverse incentives or what economists call “moral hazard”, causing unintended consequences such as grain mountains and wine lakes, real estate bubbles and debt overhangs, and the collapse of the carbon price.

When things go off the rails, the EU reflex is never to question or scrap the policy, since political dogma, vested interests and institutional inertia rule out going back on what in Eurospeak is called the “acquis” – European achievements.

The default response is always “more Europe”, although not necessarily the most straightforward solution, which is often fenced around with political vetoes.

BRUSSELS (Reuters) – In a loosely coordinated strategy, the EU’s top officials, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso, have telephoned Greek party leaders in recent days to spell out that if Greece wants to stay in the euro it must abide by the terms of the EU/IMF bailout, several sources said.

German Chancellor Angela Merkel, her finance minister, Wolfgang Schaeuble, and other influential voices such as European Central Bank executive board member Joerg Asmussen have delivered the same message publicly

European leaders have concluded that Greece will need a second election and aim to apply enough pressure on politicians and voters by then to engineer a majority in favor of Athens’ bailout. Privately, European Union officials are alarmed at the potential turmoil for the euro currency area if Greece were to tear up its austerity program and default on its debt.

“Certainly we are very aware of the seriousness of the situation and we are delivering our message very firmly,” said one EU official involved in coordinating the calls. “We are not the only ones. The message is coming from everywhere.”

As well as leaving Greek politicians in no doubt as to the devastation the country would face, the aim is to shock Greek electors into turning a second round of polling into a vote for or against the euro, producing a clearer result.

Opinion polls show 75-80 percent of Greeks want to stay in the euro. The calculation is that the desire to retain the currency will ultimately trump opposition to the bailout.

If faltering efforts to form a coalition fail, as appears increasingly likely, another parliamentary election could be held as soon as mid-June, with most estimates suggesting June 17 as the date.

PARIS (Reuters) – French president-elect Francois Hollande began his drive to persuade European partners to shift their economic policy priority from austerity to growth when he met on Wednesday with European Council President Herman Van Rompuy.

Hollande takes his call to add growth elements to Europe’s fiscal compact to Berlin next week.

European Union officials said they have high hopes for the new French leader and his ability to build a working relationship with German Chancellor Angela Merkel that could revive blocked efforts to overcome the euro zone’s debt crisis

“Hollande’s election is a positive development that has already changed the narrative in Europe, which was getting stuck because of an obsession with fiscal austerity,” one senior EU official said.

Van Rompuy’s visit came one day ahead of a trip to Paris by euro group president Jean-Claude Juncker. European officials are seeking assurances of Hollande’s commitment to reducing France’s budget deficit and controlling public spending in light of his tax-and-spend election platform, the source said.

Ideas that could receive new impetus include both short-term moves to promote economic growth and long-term proposals to create common euro zone bonds as well as a possible euro zone bank resolution and guarantee system, two EU officials said.

Defeated outgoing conservative President Nicolas Sarkozy, who also met Van Rompuy on Wednesday, had sided with Merkel in opposing common debt issuance, a stance French diplomats said was largely in deference to the chancellor’s domestic political constraints.

BRUSSELS/MADRID May 9 (Reuters) – Spain is set to miss its deficit reduction targets this year and next unless it takes new measures, the European Commission will forecast on Friday, but Madrid insists the targets will be met, Spanish and EU officials said.

The EU’s executive arm will announce on Friday its economic forecasts for the 27 countries in the European Union for this year and next, including growth, budget deficit and debt rates.

Spain’s borrowing costs have soared on investor concerns that the government may have to bail out the banking sector. Madrid has promised to reduce the public deficit to 5.3 percent of gross domestic product (GDP) this year from 8.5 percent in 2011, and to 3 percent in 2013.

However, the Commission will say that unless policies change, Spain will have a budget shortfall of 6.0 percent this year and just short of 4 percent in 2013, two EU officials said.

Madrid, under intense market pressure to demonstrate its public finances are be sustainable, is adamant it will meet the targets, although no new measures are in the pipeline for now.

“The debate right now is not about relaxing the deficit path but rather how to meet our pledge (to meet deficit targets),” Spain’s Prime Minister Mariano Rajoy said on Wednesday.

A Spanish government official, who asked not to be identified, said there were no plans to soften the deficit targets.

ATHENS/PARIS (Reuters) – An anti-austerity backlash by voters in Greece and France shook the euro zone on Monday, sending the euro currency and shares sliding on deepening doubts about the ability of Athens to survive in the single currency area.

Greece, where Europe’s sovereign debt crisis began in 2009, plunged into turmoil after a general election boosted far-left and far-right splinter groups, stripping mainstream parties that back a painful EU/IMF bailout of their parliamentary majority.

That raised questions over whether the country could avert bankruptcy and stay in the euro as Antonis Samaras, leader of the conservative New Democracy party which won the biggest share of the vote, tried to cobble together a government.

Samaras, who has three days to try to form a coalition, called for a national unity government to keep Greece in the euro zone but renegotiate the bailout program.

However, European Commission spokesman Amadeu Altafaj said: “Full and timely implementation of the program is of the essence in order to meet the targets and (reach) sustainability of the Greek debt.

The shock Greek result overshadowed France’s presidential election, in which Socialist Francois Hollande, who wants to change Europe’s German-driven focus on austerity and focus on restoring growth, ousted conservative incumbent Nicolas Sarkozy.

German Chancellor Angela Merkel, who had openly supported Sarkozy, her partner in euro zone crisis management, pledged to welcome Hollande “with open arms” and work with him to maintain strong Franco-German cooperation at the heart of Europe.

PARIS (Reuters) – Socialist Francois Hollande swept to victory in France’s presidential election on Sunday in a swing to the left at the heart of Europe and promised to start a pushback against German-led austerity policies.

Hollande led conservative incumbent Nicolas Sarkozy by 51.3 percent to 48.7 percent with 83 percent of votes counted, the Interior Ministry said, bringing the centre-left back to government in Paris after a decade in opposition.

“Europe is watching us,” the president-elect said in a victory speech in his constituency of Tulle in central France. “I’m sure that in many European countries there is relief and hope at the idea that austerity does not have to be our only fate.”

Sarkozy, punished for his failure to rein in 10-percent unemployment and for his brash personal style, was the 11th euro zone leader in succession to be swept from power since the currency bloc’s debt crisis began in 2009.

The outgoing president conceded defeat within 20 minutes of polls closing, telling supporters he had telephoned Hollande to wish him good luck in such trying times.

“I bear the full responsibility for this defeat,” Sarkozy said, indicating he would withdraw from frontline politics.

“My place can no longer be the same. My involvement in the life of my country will be different from now on.”

PARIS (Reuters) – Socialist Francois Hollande can expect a left-wing parliamentary majority if he wins Sunday’s presidential runoff, and the far-right National Front could shake President Nicolas Sarkozy’s conservative UMP party to its foundations.

If Hollande is elected, as all opinion polls show, history suggests voters will grant him a working majority in legislative elections on June 10 and 17, as they have each time a new president has just been installed.

The only doubt is whether his centre-left Socialist party would have an absolute majority or need support from Communist or Green deputies to pass laws.

“The tradition of the Fifth Republic (since 1958) after a presidential election is that the legislative polls confirm the people’s choice,” said Jean-Luc Parodi, a veteran political scientist attached to the CEVIPOF institute.

“The parliamentary election is usually marked by asymmetric abstention which favors the winning side in the presidential race,” he told Reuters.

Sarkozy’s UMP party, the dominant force in French politics for a decade, could crack under pressure from a resurgent far-right as factions feud over whether to shun or embrace backers of Marine Le Pen’s anti-immigration National Front (FN).

If the FN replicated Le Pen’s 17.8 percent score on the first presidential ballot on a high turnout, it could split the right-wing vote in more than half of the 577 constituencies, making it easier for the Socialists to beat Sarkozy’s UMP party.