Greek election buys time for euro zone strugglers - Reuters poll

LONDON (Reuters) - The Greek election result has bought time for the euro zone to sort out its sovereign debt crisis, but there is nothing that will prevent years of economic hardship daunting Greece, Portugal and Spain, a Reuters poll showed.

But Spain looks set to avoid a sovereign bailout, despite the parlous state of its banking sector.

As talks go on in Athens over the formation of a viable Greek government, economists polled since the weekend's election gave broad backing to Greece's continued membership of the euro zone.

Only three out of 19 economists thought it would leave the euro zone at some point, whereas more than a third surveyed last week in a larger poll thought the currency union would not survive intact over the next 12 months.

The percentage of economists predicting the euro zone will survive in its current form has been steadily increasing since May and is now back at a high of 84 percent, last seen in January's poll.

While the Greek election seems to have soothed fears about the euro zone's future, economists warned dire economic growth prospects and lengthening dole queues will plague the southern European economies through to 2014 at least.

"The outcome of Greek elections has given time to the euro zone to try to implement a new programme to support Greece in a long term perspective," said Jesus Castillo, economist at Natixis in Paris.

"So even if the pressures on Spain's (government) bonds would remain high, it should benefit from a slight softening. That said, Spain will depend on the willingness of the ECB to support it in the short term."

While Spanish government bond yields have eased slightly on Wednesday, for the 10-year paper they are still close to the 7 percent mark that analysts say cannot be sustained for long, without the government seeking outside help.

Still, only five out of 17 economists in the latest survey thought Spain will need a sovereign bailout by the end of this year.

A poll last week showed a slight majority - 35 out of 59 - believed a bailout was "likely" or "very likely" over the next 12 months.

"Whether Spain will need a bailout is currently on a knife's edge, with sovereign bond yields high and rising," said Christian Schulz, economist at Berenberg Bank.

"A satisfactory policy response from Europe's leaders and the European Central Bank could be able to defuse the situation again and buy Spain more time to continue on its adjustment path."

Europe won support from world leaders on Tuesday for an ambitious but slow-moving overhaul of the euro zone, even as pressure built in financial markets for a quicker fix to the debt crisis.

NO GROWTH IN GREECE

Greece, as suggested in previous polls, will see no return to economic growth soon.

Economists expect its economy will contract a median 5.8 percent this year, and then 1.3 percent next year. That means the growth outlook for Greece has now been downgraded five polls in a row.

The jobless rate - a record at 22.6 percent in the first quarter - is expected to rise to 23.4 percent by the end of next year.

"A vicious spiral fuelled by high uncertainty, additional austerity measures and tight liquidity conditions amplifies recessionary pressures for a fourth consecutive year," said Nicholas Magginas, economist at the National Bank of Greece.

He said he expected the labour market to stabilise around the second or third quarter of 2013, and the rebalancing of Greece's economic model should accelerate, whereby net exports will make a bigger contribution to growth.

The poll showed gloomy times ahead in Spain.

The Spanish economy will contract around 1.5 percent this year and 0.7 percent next year, the poll showed - far more pessimistic than IMF forecasts from April that suggested a good chance of returning to growth next year.

Eighteen out of the 25 contributors who took part in both the April euro zone periphery polls and Wednesday's slashed their growth outlook for next year.

Spain's jobless rate looks very likely to keep heading higher. Just two analysts out of 14 predicted it will fall next year, with the median expectation suggesting it will eventually surpass 25 percent.

Portugal faces a similar story, although with a far lower jobless rate than in Greece or Spain.

Only Ireland, lumped together with Greece and Portugal as countries that have been bailed out, will see any sort of significant improvement in its fortunes, the poll showed.

The median expectation of 25 economists showed its economy achieving 0.2 percent growth this year and 1.5 percent in 2013, when unemployment will likely start to fall.

(Polling and analysis by Namrata Anchan and Deepti Govind; editing by Ron Askew)