Greeks pull funds from banks

ATHENS (Reuters) - Greece's political leaders meet on Wednesday to form a caretaker government to take it to a second election in just over a month, with its euro membership at stake and its president speaking of "fear that could develop into panic" at its banks.

President Karolos Papoulias was forced to call a new vote after failing to cobble together a coalition government. An election on May 6 saw leftist opponents of Greece's EU/IMF bailout deprive the parties that ran the country for generations of a majority.

Polls suggest the radical left are poised to win the re-run.

That prospect has shaken faith in Greece's ability to remain in the single currency and stay solvent, sending the euro and European shares lower, and raising the bond yields that reflect the risk that other European countries will be hurt.

Greeks are withdrawing euros from banks, apparently afraid of the prospect of rapid devaluation if the country leaves the European single currency, minutes of Papoulias's negotiations with political leaders showed.

Central bank head George Provopoulos told him savers withdrew at least 700 million euros on Monday, the president told party chiefs.

"Mr Provopoulos told me there was no panic, but there was great fear that could develop into a panic," the minutes quoted the president as saying.

"Withdrawals and outflows by 4:00 pm when I called him exceeded 600 million euros and reached 700 million euros," he said. "He expects total outflows of about 800 million euros."

Greeks have been steadily withdrawing funds from banks for months, and there has so far been no sign of queues at banks in Athens.

Opinion polls show that voters enraged over five years of recession, record unemployment and steep wage cuts are likely to elect a parliament as fragmented as the one they chose on May 6. But the vote, probably in mid-June, may well tip the balance of power toward leftist parties opposed to the bailout conditions.

Policymakers from European Union states and at the European Central Bank have warned that they would stop sending debt-choked Athens the cash it needs to stay afloat if a new government tears up the bailout.

Many Greek voters still hope they can stay in the euro without abiding by the conditions imposed to obtain the bailouts, as promised by Alexis Tsipras, the charismatic 37-year-old leader of the surging leftist SYRIZA party.

"There is a bit of schizophrenia in our society right now. People want to stay in Europe - have the cake - but they also want to eat it - by attacking the creditors," said Theodore Couloumbis at Athens-based think-tank ELIAMEP.

"Much depends on whether the Greek people in this repeat election are going to vote with anger and passion or if they will cool off, reflect and see in effect what the real choices are. The choice is between bad and worse."

Party leaders will meet Papoulias at 1 p.m. (1000 GMT) to put together a caretaker government. It was not clear who would be part of that emergency cabinet, whose main task would be to organise the repeat election - the third in Greece in as many years.

"DOESN'T LOOK GOOD"

Many in Greece pin their hopes on newly elected French President Francois Hollande, who campaigned on a pro-growth platform. Socialist Hollande offered some hope for more flexibility towards Greece on Tuesday, saying after his first meeting with German Chancellor Angela Merkel:

"I hope that we can say to the Greeks that Europe is ready to add measures to help growth and support economic activity so that there is a return to growth in Greece."

But despite encouraging comments from the conservative German leader about wanting to see growth, differences remain over how far austerity programmes might be relaxed.

IMF chief Christine Lagarde had earlier in the day joined a string of EU policymakers who have over the past days lifted the taboo of openly discussing the prospect of an exit of Greece from the euro zone. She said it was important to be prepared for that possibility and warned that an exit would be "quite messy".

European shares fell to their lowest closing level since the start of 2012 after attempts to form a government collapsed. Traders said markets could slump further in the coming days, with fears of a contagion to other crisis-hit EU states including Spain and Italy sending the euro below $1.28.

Patience is also wearing thin among a number of EU policymakers exasperated by the fact that a country which accounts for barely two percent of the euro zone's economy should drag the bloc back into a deep crisis yet again after more than two years of roller-coaster crisis.

"The 16 other governments in the euro zone really are at the end of their patience with Greece. There isn't room or any willingness to move," said one official involved in talks over Greece at the European Commission. "The decisions are really in Athens' hands. But it doesn't look good."

(Additional reporting by Harry Papachristou and Karolina Tagaris in Athens and Luke Baker in Brussels; Editing by Mike Peacock)

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