Negotiations to form a coalition government in Greece appeared to be in jeopardy Sunday evening as the leader of the leftist Syriza party refused to join a unity coalition over objections to Greece's current bailout package which is tied to harsh spending cuts.

President Karolos Papoulias is trying to preserve a loan agreement with the EU and IMF. He has been meeting with leaders of several smaller parties to try to persuade them to join a coalition government with the Socialist Pasok party and the center-right New Democracy party, according to the New York Times. If Papoulias fails to form a coalition which comprises a majority of parliament, an interim government will be appointed and a new election will be scheduled, likely to be held in June.

“I maintain some optimism for a unity government,” Pasok leader, Evangelos Venizelos, said, “but we’re also prepared for elections.”

Greece's last election was May 6. Greeks mostly voted against the loan agreement and several more years of austerity. But if Greece fails to maintain its end of the current agreement, its European neighbors will stop financing its debt. This would quickly lead to default and a possible exit from the Eurozone, though that scenario isn't ideal for Greece or the Eurozone. 

According to the Financial Times:

Uncertainty over how Europe’s banks would be affected has continued to be the primary concern. Witnessing Greek bank customers suddenly having their euros turned into drachmas overnight, depositors in other peripheral banks might suddenly withdraw their cash and place it in seemingly safer euro accounts in Germany or elsewhere. Such a massive run could destroy much of the eurozone periphery’s banking sector.

“The ball is genuinely in their court,” says the EU official. “Those who understand the situation realise their room for manoeuvre is extremely limited. We simply have to wait.”

The Pasok and New Democracy parties may be eager to avoid facing the electorate again so soon, according to Reuters. The two parties have ruled Greece for more than four decades and are responsible for negotiating the current bailout deal, which includes unpopular cuts in wages, pensions and spending. Polls since the last election have shown public opinion tipping toward opponents of the bailout.

The constitution sets no deadline for how long Papoulias has to form a unity coalition and he has not indicated how long he will search for an agreement before calling for new elections, said the Sydney Morning Herald.