European Union paymaster Germany warned Greece on Thursday that European partners could only go on aiding debt-ridden Athens if it sticks to an international bailout programme rejected by voters in a general election.

Financial markets, spooked by the risk of a disorderly Greek default spreading turmoil, steadied as Spain's move to clean up its banks and the release of a key payment to Athens eased immediate concerns about the euro zone.

"Greece can rely on the solidarity of Europe, but if Greece does not help itself, there is nothing to be done," German Finance Minister Wolfgang Schaeuble told a news conference.

"Whether Greece is ready to do what is necessary - only the Greek people can decide."

The head of the euro zone's rescue fund, Klaus Regling, said Athens would have to agree with international lenders on the terms for financial aid before any more money flows after June.

The European Financial Stability Facility (EFSF) agreed on Wednesday to release the latest 4.2 billion euro ($5.4 billion) aid tranche to tide Greece over for the next two months, as talks to try to form a government in Athens appeared doomed.

Socialist leader Evangelos Venizelos, whose party came third in Sunday's election, made a last-ditch effort to cobble together a coalition that would back the deeply unpopular EU/IMF bailout, but Greece seemed to be moving inexorably towards new elections, probably next month.

A Reuters poll of economists taken in the last two days showed that only a slim majority - 35 out of 64 respondents - think Greece will still be in the euro zone by the end of 2013. The rest thought it would not be.

In Brussels, a senior EU official said there was no desire among euro zone states for Greece to leave the 17-nation currency bloc. He also said the bailout terms were not negotiable, but added it may be possible to adjust the "outer margins" of the 130-billion-euro rescue package.

JOBLESS RECORD

Highlighting one reason why two-thirds of Greek voters cast ballots for anti-bailout parties of the radical left and far-right, figures released on Thursday showed unemployment hit a record 21.7 percent in February, with a staggering 54 percent of young people aged 15-24 without a job.

Budget cuts imposed since 2010 under the terms of the bailout to save Greece from a chaotic default have caused a wave of corporate closures and bankruptcies, fueling anger and despair.

Greece is in its fourth year of a deep recession, and the absence of economic growth in much of the currency zone is making it harder for countries to reduce their public deficits and debt.

France's new president-elect, Francois Hollande, has vowed to shift Europe's focus from hair-shirted austerity to measures to revive growth and will take that message to Berlin right after his inauguration next Tuesday.

But German Chancellor Angela Merkel, talking tough before a regional election next Sunday that her Christian Democrats look set to lose, rebuffed pressure for new stimulus measures funded by debt to revive growth in the euro area.

"Growth through structural reforms is sensible, important and necessary," she told parliament in Berlin. "Growth on credit would just push us right back to the beginning of the crisis, and that is why we should not and will not do it."

Merkel faces calls from both her centre-left opponents at home and many European governments to relax the austerity measures that, as leader of Europe's largest economy, she has prescribed as the remedy for the sovereign debt crisis.

"So much has been discussed, from to euro bonds to leveraging, they are all hailed as miracle cures then deemed unsustainable," Merkel told parliament. Hollande said just before his second-round victory that he wants to reopen the discussion on common euro zone bonds with Berlin.  In Paris, a spokesman for Hollande's Socialist Party said he would not be deflected from his growth drive by Merkel's comments.

"Angela Merkel is sticking to her position but she cannot override the will of the French people," spokesman Benoit Hamon told BFM TV.

 

GREAT CONCERN

In Spain, the government effectively took over the country's fourth largest bank, Bankia SA, in a radical attempt to put an end to a four-year banking crisis triggered by a real estate crash.

Prime Minister Mariano Rajoy's centre-right government said the banking sector was safe and more measures to strengthen other ailing banks would be announced on Friday, spurring a rebound on the Madrid stock exchange.

The sector has been through three major overhauls since the 2008 construction and property market crash, which left lenders with at least 184 billion euros in toxic assets, including repossessed housing complexes that stand empty.

Spain has insisted it can manage the bank rescues on its own and meet its European commitment to reduce its public deficit to 3 percent of gross domestic product next year.

But many economists, led vociferously by New York University doomsayer Nuriel Roubini, believe Madrid will end up having to request a bailout, unless the euro zone rescue fund is allowed to lend directly to its banks - a move Germany opposes.

The situation in Europe is being closely watched by major investors abroad.

"We are all watching with great concern," said Gao Xiqing, president of the China Investment Corporation, China's $410 billion sovereign wealth fund.

"Over the years we repeatedly said we support a unified Europe, but now with all these things, we're very concerned," he told Reuters at a conference in Ethiopia.