His 16-strong Cabinet will be sworn in Thursday.

About €700 million ($898 million) in deposits have left Greek banks since May 7, the day after the election, President Karolos Papoulias told party leaders after being briefed by central bank governor George Provopoulos.

“The situation in the banks is very difficult,” Papoulias said according to a transcript of the meeting’s minutes released Tuesday night. “Mr. Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic.”

There were no queues at banks in Athens after the May 6 election, but Greeks have been gradually withdrawing their savings over the past two years as the country’s financial crisis deepened, either sending the money abroad or keeping it in their homes.

A Greek banking official, who spoke on customary condition of anonymity, said the situation with deposit outflows was “calmer” on Wednesday.

Theodore Krintas, managing director of Attica Wealth Management, said he “would expect the population to quietly be doing what it has been doing in the last days.”

“In other words, some of the Greek citizens are afraid and are taking a portion of the money, but I’m not expecting a bank run,” Krintas said.

Despite the country’s financial situation, households and businesses still had €165 billion deposited in local banks in March, the last month for which Bank of Greece figures are available, compared to about €237 billion before the crisis broke in late 2009.

The May 6 election saw a massive rise in popularity for parties that advocate pulling out of Greece’s commitments to its international bailout deal, under which it agreed to strict austerity measures in return for billions of euros in rescue loans. The spending cuts and tax hikes have left the country mired in the fifth year of a deep recession and sent unemployment soaring to above 21 percent, and many argue the country cannot hope for recovery if they stick to the deal.

“I want to believe that next time the people will express their opposition to the bailout agreement even more adamantly so that a strong government will be formed without the current parties,” civil servant Christina Papadopoulou said of the repeat ballot.

Negotiations to agree on a coalition government collapsed Tuesday, nine days after voters furious with the handling of the country’s financial crisis deserted the two formerly dominant parties in favor of smaller anti-bailout groups. The election left no party with enough votes for a majority in parliament.

“In a democracy, new elections are the natural consequence of the impossibility of forming a government following an election. It will now be for the Greek people to take a fully informed decision on the alternatives, having in mind that this will be indeed an historic election,” said European Commission President Jose Manuel Barroso.

“We will of course respect the democratic decision of the Greek people,” he added. “At the same time, Greek citizens should be aware that there are 16 other democracies in the euro area.”

Greece is being kept afloat by bailout loans from other eurozone countries and the International Monetary Fund, and losing them would lead to state coffers running out of money, including for pensions, health care and salaries. It is unclear how the June election will affect the continued disbursement of the loan installments.

“The Greek people need to know what they are voting for,” German Foreign Minister Guido Westerwelle said Wednesday. “Namely not about party politics but about the future of Greece in Europe and the euro. We hope and expect at the same time that all decision makers in Greece are now aware of their responsibility.

The instability has led to questions about Greece’s prospects of remaining in the euro.

“If the country’s budgetary commitments are not honored, there needs to be appropriate revisions, which means either supplementary financing and additional time, or mechanisms for an exit, which in this case must be orderly,” IMF head Christine Lagarde said on France 24 television.

Greece leaving the euro “is something that would be extremely expensive and would pose great risks, but it is part of the options that we must technically consider.”

But Alexis Tsipras, head of the Radical Left Coalition, or Syriza, which came a surprise second in the May 6 election after campaigning on an anti-bailout platform, maintained that European governments would not dare force Greece out of the euro for fear that would kill the currency union.

“(German Chancellor Angela) Merkel now realizes that if she takes the risk of sending Greece packing, the next day she herself will have to leave the euro,” he told state NET TV late Wednesday.

He added that if creditors cut Greece’s loan lifeline, Athens will stop its debt repayments.

“Our intention is not to take unilateral action, unless we are forced to do so. If they don’t give us the installments, we won’t pay the loansharks,” he said. “Our top priority is to pay salaries and pensions and support a collapsing society.”

Greece now faces a month of inertia, with a government hamstrung by party leaders’ insistence that it can take no binding decisions.

Early Thursday, the government announced that Giorgos Zanias, a top negotiator in Greece’s huge debt writedown deal concluded this year, was appointed the country’s caretaker finance minister.

Zanias is a senior Finance Ministry official and Athens University professor of economics.

Veteran diplomat Petros Molyviatis has been named as foreign minister. He also served as foreign minister in 2004-06.

Tsipras said earlier he had requested “that the caretaker government should not implement measures that would involve further cuts in salaries, pensions and public spending, that would dismantle labor relations or allow privatizations. “

Tsipras said he also asked for a freeze on every ongoing sale of state property.

The Greek privatization fund later said it had already decided to delay until after the election any decisions on the country’s key commitment to sell off some state assets. Under its international bailout agreements, Greece must raise €19 billion ($24.2 billion) through privatizations by 2015 — and has so far raised about €1.5 billion.

Tsipras is the front runner for the next election. Recent opinion polls have shown him as likely to come first in the June vote, though with nowhere near enough votes to form a government on his own.

The two mainstream parties, conservative New Democracy and socialist PASOK, have warned that anti-bailout policies will lead Greece out of the euro.

“Two courses lie ahead of the Greek people: Either to change everything in Greece — with changes which can be carried out in a Europe that is also changing — or to experience the terror of an exit from the euro, the terror of isolation outside Europe and the collapse of all we have built so far,” said New Democracy head Antonis Samaras.

A win by Tsipras would put him in a dominant position to make a coalition deal with other anti-bailout parties.

“This will make reaching an agreement between the next government and Greece’s international creditors extremely difficult, raising the risk of a Greek exit from the euro and sovereign debt default,” said Robert O’Daly, Senior Economist at the Economist Intelligence Unit. “The consequences of this would be dire for Greece and probably the rest of the euro area.”

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Derek Gatopoulos in Athens, Geir Moulson and Frank Jordans in Berlin, Raf Casert in Brussels, and Annita Mordechai contributed.

The protracted political uncertainty has worried Greece’s international creditors as well as Greeks themselves, with the country’s president warning wrangling political leaders that millions of euros had been withdrawn from bank deposits in the aftermath of the inconclusive May 6 election.

About €700 million ($898 million) in deposits have flown out of Greek banks, President Karolos Papoulias told party leaders Monday after being briefed by central bank governor George Provopoulos.

“The situation in the banks is very difficult,” Papoulias said according to a transcript of the meeting’s minutes released Tuesday night. “Mr. Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic.”

There were no queues at banks in Athens after the elections, but Greeks have been gradually withdrawing their savings over the past two years as the country’s financial crisis deepened, either sending the money abroad or keeping it in their homes.

“I would expect the population to quietly be doing what it has been doing in the last days. In other words, some of the Greek citizens are afraid and are taking a portion of the money, but I’m not expecting a bank run,” said Theodore Krintas, managing director of Attica Wealth Management.

The May 6 election saw a massive rise in popularity for parties that advocate pulling out of Greece’s commitments to its international bailout deal, under which it agreed to strict austerity measures in return for billions of euros in rescue loans. The spending cuts and tax hikes have left the country mired in the fifth year of a deep recession and sent unemployment soaring to above 21 percent, and many argue the country cannot hope for recovery if they stick to the deal.

“I want to believe that next time the people will express their opposition to the bailout agreement even more adamantly so that a strong government will be formed without the current parties,” civil servant Christina Papadopoulou said of the repeat ballot.

Negotiations to agree on a coalition government collapsed Tuesday, nine days after voters furious with the handling of the country’s financial crisis deserted the two formerly dominant parties in favor of smaller anti-bailout groups. The election left no party with enough votes for a majority in parliament.

“In a democracy, new elections are the natural consequence of the impossibility to form a government following an election. It will now be for the Greek people to take a fully informed decision on the alternatives, having in mind that this will be indeed an historic election,” said European Commission President Jose Manuel Barroso.

“We will of course respect the democratic decision of the Greek people,” he added. “At the same time the Greek citizens should be aware that there are 16 other democracies in the euro area. The democratic decisions taken in the euro area must also be taken into account.”

It is the bailout loans from other eurozone countries and the International Monetary Fund that have been keeping the country afloat, and losing them would lead to state coffers running out of money, including for pensions, healthcare and salaries. It is unclear how the mid-June election will affect the continued disbursement of the loan installments.

“It is our wish, and I think the wish of all Greece’s European partners, that a Greek government which is capable of acting emerge as soon as possible from these elections,” German Chancellor Angela Merkel’s spokesman, Steffen Seibert, said in Berlin. “I am not going to say anything here now about the payment of tranches which are due at the end of June — that doesn’t have to be decided on in mid-May.”

The instability has led Greece’s prospects of remaining in the euro top of the agenda.

“If the country’s budgetary commitments are not honored, there needs to be appropriate revisions, which means either supplementary financing and additional time, or mechanisms for an exit, which in this case must be orderly,” IMF head Christine Lagarde said in a Tuesday interview on France 24 television.

Greece leaving the euro “is something that would be extremely expensive and would pose great risks, but it is part of the options that we must technically consider.”

Greece now faces of month of inertia, with a government hamstrung by party leaders’ insistence that it can take no binding decisions.

“It will be a strictly caretaker government, which must not take any action at the EU or NATO that will be binding for the Greek people,” Communist Party head Aleka Papariga said. “If there is an emergency or unforeseen event, that can be addressed by the consultation among the parties with the involvement of the president.”

Alexis Tsipras, head of the Radical Left Coalition, or Syriza, which came a surprise second in the May 6 elections after campaigning on an anti-bailout platform, said he had requested “that the caretaker government should not implement measures that would involve further cuts in salaries, pensions and public spending, that would dismantle labor relations or allow privatizations. . I also asked for a freeze on every ongoing process regarding the sale of state property.”

Tsipras is the frontrunner for the next election. Recent opinion polls have shown him as likely to come first, though with nowhere near enough votes to form a government on his own — meaning more coalition negotiations will be needed.

The two mainstream parties, conservative New Democracy and socialist PASOK, have warned that anti-bailout policies will lead Greece out of the euro.

“Two courses lie ahead of the Greek people: Either to change everything in Greece — with changes which can be carried out in a Europe that is also changing — or to experience the terror of an exit from the euro, the terror of isolation outside Europe and the collapse of all we have built so far,” said New Democracy head Antonis Samaras.

A win by Tsipras would put him in a dominant position to make a coalition deal with other anti-bailout parties, even if he cannot form a government alone.

“This will make reaching an agreement between the next government and Greece’s international creditors extremely difficult, raising the risk of a Greek exit from the euro and sovereign debt default,” said Robert O’Daly, Senior Economist at the Economist Intelligence Unit. “The consequences of this would be dire for Greece and probably the rest of the euro area.”

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Geir Moulson in Berlin, Raf Casert in Brussels, Annita Mordechai, Derek Gatopoulos and Nicholas Paphitis contributed.

No date has been set for the elections, but they will have to be by the middle of June — the month in which Greece must make more spending cuts to ensure it meets the terms of its international bailout. A caretaker government will be appointed until then.

The uncertainty has created alarm across the continent, with key leaders fearing that Greece could be forced out of the euro, triggering shock waves throughout the 17-country Eurozone.

“What Greece now needs is reliability and the will to reform” German Foreign Minister Guido Westerwelle said in a statement. “They are the only way back to growth and competitiveness. There is no alternative.”

“We want Greece to remain part of the eurozone,” he said. “The decisions that lie ahead in Athens are not just about the future government of Greece. This is about a commitment by the Greek people to Europe and the euro.”

The protracted deadlock and the prospect of an anti-austerity party winning the new vote hammered Europe’s markets on fears that Greece might have to leave the euro.

Main European markets lost earlier gains, with the FTSE 100 index of leading shares shedding 0.6 percent, Germany’s DAX down 1 percent and the CAC-40 in France 0.7 percent. Greek shares were clobbered further after days of heavy losses, with the Athens stock market initially diving 4.86 percent before a slight rally to close 3.6 percent down. The euro also fell, trading 0.3 percent lower at $1.2794.

About €700 million ($898 million) in deposits have flown out of Greek banks since the May 6 elections, President Karolos Papoulias told party leaders after being briefed by the central bank governor, George Provopoulos.

“The situation in the banks is very difficult,” Papoulias said according to a transcript of the meeting’s minutes released by his office. “Mr. Provopoulos told me that of course there is no panic, but there is great fear which could turn into panic.”

Socialist party leader and former finance minister Evangelos Venizelos on Tuesday said the country is “unfortunately” headed for another round of elections, “because certain people coldly put their short-term party interests above the national interest.”

Papoulias convenes a new meeting of party leaders on Wednesday to appoint a caretaker government until the election.

On May 6, voters furious over the handling of the country’s two-year vicious financial crisis took their anger out on the conservative New Democracy and socialist PASOK parties that dominated Greece’s political scene for the past 40 years, deserting them for smaller parties on the right and left.

New Democracy came in first but with a massive loss of support. PASOK saw its popularity plunge to the lowest level since it was founded in 1974, after the end of Greece’s seven-year dictatorship. Those who saw their numbers surge were parties that promised to pull Greece out of its bailout agreement, with forced spending cuts and tax hikes in return for billions of euros in international rescue loans.

Political leaders traded accusations as to who was to blame during the failed power-sharing talks.

The spotlight quickly fell on Alexis Tsipras, the young head of the Radical Left Coalition, or Syriza, whose party came a surprise second in the elections. Tsipras insisted he could neither join nor support any government that would continue to implement the bailout terms.

Venizelos and conservative New Democracy head Antonis Samaras accused him of being irresponsible, saying his policies would force Greece out of the eurozone.

But Tsipras remained adamant that the austerity measures meant Greece’s recession-bound economy could never recover.

“They wanted to leave the country without hope and for us to add our signature to these measures of poverty and desperation,” he said. “We will not do them that favor.”

Venizelos and Samaras could have formed a government with the small Democratic Left party of Fotis Kouvelis, but all insisted Tsipras had to be on board or at least lend his backing if the government hoped to push through yet more austerity measures Greece must implement next month. A last-ditch proposal by the president for the creation of a technocrat government went nowhere.

“I did what I could . Let all Greeks draw their conclusions, and all parties assume their responsibilities,” Kouvelis said.

Opinion polls show Syriza is likeliest to come first in the new vote, but without enough seats in parliament to govern alone. However, as first party, Syriza would enjoy an automatic 50-seat bonus and could hope to form a coalition with the help of other left and right-wing anti-austerity parties.

“These upcoming elections will be a struggle between the left-leaning forces of nihilism in league with opportunistic populists,” New Democracy leader Antonis Samaras said. “On the other side will be a European front, strong and determined.”

Many Greeks seem resigned to the need for new polls, even though that will hold back the country’s commitments to detail new harsh cutbacks.

“The solution is provided by democracy and democratic procedures,” said Athens resident Yannis Ekaterinaris.

But others saw no hope of any change, saying a new election won’t solve their problems.

Dmitris Mardas, an associate professor of economics at Thessaloniki University, said the timing of the vote would be especially painful in June, key dates for Greece’s tourism industry.

“As far as the economy is concerned, this is the worst thing that could have happened,” said Mardas. “It’s just what we didn’t need.”

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Associated Press writer Derek Gatopoulos contributed to this report from Athens.

Venizelos was the third party leader to try to cobble together a governing coalition after elections last Sunday gave no party enough parliamentary seats to form a government. Voters furious at two years of harsh austerity measures taken in return for international bailouts worth €240 billion ($310 billion) rejected Greece’s two formerly dominant parties, Venizelos’ socialist PASOK and the conservative New Democracy, in favor of smaller parties on the left and right.

The turmoil has alarmed Greece’s international creditors, who have stressed that the country must stick to the terms of its rescue deals if it hopes to continue receiving the funds that have been keeping it afloat since May 2010.

Whether Greece should adhere to the strict austerity measures required for the bailout loans or pull out of the deal has been at the heart of the wrangling over creating a coalition government.

Alexis Tsipras, head of the Radical Left Coalition, or Syriza, that made massive gains to come second in Sunday’s election, campaigned on an anti-bailout platform and insists any new government must cancel the austerity measures. He argues the terms are so onerous that they are giving the country’s battered economy no chance of recovery.

But both Venizelos and Antonis Samaras, head of New Democracy, have slammed Tsipras’ position as irresponsible. They say his policies would lead to disaster and force Greece out of the European Union’s joint currency — something that none of the political leaders say they want.

Hopes had been raised that a solution could be found in the form of a partnership between New Democracy, PASOK and the smaller Democratic Left party of Fotis Kouvelis, whose 19 seats put it in a potential kingmaker position. But all three parties have insisted they cannot join forces without the support of Syriza, given its strong performance in the elections.

Handing back the mandate to the president, Venizelos said that while there had been a meeting of minds between his party, Democratic Left and New Democracy, Tsipras was sticking to his position.

Papoulias could break the deadlock when he calls the party leaders for a last-ditch attempt at a solution, but chances are slim. Recent opinion polls show Syriza would win new elections if they are called. Although it would not get enough votes to form a government on its own, it would benefit from regulations that give the first party a bonus 50 seats in the 300-member parliament, putting it in the dominant position to seek coalition partners among other anti-bailout parties.

Such is the disillusionment with the socialist PASOK party and conservative New Democracy, which have been alternating in power for the last 38 years, that neither is expected to garner enough votes to form a government. Days of wrangling over forming a coalition will likely ensue, with the prospect — alarming to Greece’s lenders and much of the country’s population — of another round of elections if they fail.

Public anger has been so high that politicians have been forced to maintain low-profile campaigns for fear of physical attacks on the streets in a country battered by business closures and hundreds of thousands of job losses.

The last opinion polls published before a two-week blackout ahead of the election showed PASOK and New Democracy hemorrhaging support since the last election in 2009. Their support has reached historic lows, plunging to percentages last seen in the mid-1970s for the socialists and to historic lows for New Democracy, whose previous low of 33.47 percent was reached in the crushing defeat of 2009.

The stakes couldn’t be higher.

Entirely dependent on billions of euros worth of international rescue loans from other European countries and the International Monetary Fund, Greece must impose yet more austerity measures next month, if it is to keep the money flowing and prevent a default and a potentially disastrous exit from the euro.

New Democracy leader Antonis Samaras is expected to come in first, benefiting from a bonus 50 seats in the 300-member parliament. But even with that he would fall far short of the 151 seats needed to form a government. Opinion polls projected him winning not more than 25.5 percent.

PASOK, which stormed to victory in the last parliamentary election in 2009 with 43.92 percent and George Papandreou at its helm, has seen its support collapse over the past two years. Now headed by former finance minister Evangelos Venizelos, it is fighting off a challenge by anti-bailout left-wing parties, with opinion polls projecting PASOK to win between 14.5 and 19 percent. If that happens, it would be the lowest since November 1974, when the party won 13.5 percent just two months after being founded.

Venizelos warned that Greece faces default and mass poverty if voters back anti-bailout parties.

“Sunday will decide whether we remain in Europe and the euro, and we stay on a course that is difficult but safe, after having covered most of the distance, to finally emerge from the crisis and (austerity),” he said during his final campaign rally in central Athens on Friday night.

“Or it will (determine) whether we embark on an adventure, sliding back many decades and taking the country to default, to leave Greeks facing mass poverty.”

Repeated rounds of tax increases and reductions of salaries and pensions over the past two years have seen the country mired in a fifth year of recession and unemployment spiral to above 21 percent. The backlash has seen voters turn to smaller groups and mostly anti-bailout offshoots created by disgruntled deputies who rebelled rather than vote in favor of the measures.

“This whole situation has destroyed our dreams,” said Haris Manolis, a worker at a steel factory where employees have been on strike for six months to protest layoffs and wage cuts. “We have no more dreams. We have one: to overturn them so that we can make new ones. That’s it.”

Up to an unprecedented 10 parties have been projected to win more than the 3 percent minimum threshold for a parliamentary seat. That includes the extreme right Golden Dawn, which has been riding high on the emotive issue of illegal immigration, promising to clean up crime-ridden, ghetto-like city neighborhoods and mine the country’s borders to stop more migrants getting in.

“People are not choosing smaller parties because they believe in their agendas,” political communications expert Spiros Rizopoulos said. “I doubt if anyone has ever read an agenda of a smaller party. It’s because they want to protest a decision that has been made” that led Greece into the bailouts and the ensuing austerity.

For the past six months, New Democracy and PASOK have been uneasy bedfellows in a coalition government cobbled together under technocrat Prime Minister Lucas Papademos. The former European Central Bank head was appointed after Papandreou was forced to resign following a sudden decision to put the country’s second bailout to a referendum.

The coalition, which initially also included a small right-wing party, was formed with the sole mandate of securing the country’s second bailout and a massive bond swap deal with private creditors that wiped nearly €107 billion ($140 billion) off the country’s national debt.

With both secured in early April, elections were called.

Samaras has insisted he will not enter into a coalition with his Socialist rivals.

“It is not in the interest of the Greek people to have a power-sharing government of this kind to exist,” he told supporters at his main campaign rally in Athens on Thursday night.

But the tactic is seen as an effort to drum up the maximum support before Sunday’s vote, and an attempt to force new elections by refusing to cooperate with other parties is likely to anger even members of his own party who have openly supported sharing power with the Socialists.

“Whoever dares to torpedo the creation of a coalition government won’t even receive his own vote in the next elections,” Athens University political science professor Elias Nicolacopoulos said.

“Whatever they may say now, however much they raise the rhetoric, in 10 days maximum they are obliged to agree on forming a government. Otherwise, they will be unable to walk on the street. … Right now, people expect — even if they vote for anti-austerity parties — responsible behavior on forming a government.”

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Demetris Nellas, Nicholas Paphitis and Theodora Tongas in Athens contributed to this report.