By Harry Papachristou and Karolina Tagaris
ATHENS, June 21 (Reuters) - The smallest party in Greece's ruling coalition was set to pull out of the government on Friday after a row over the abrupt closure of the state broadcaster, leaving Prime Minister Antonis Samaras with a sharply reduced majority in parliament.
A majority of lawmakers from the Democratic Left party were in favour of pulling their ministers from Samaras's government as they held emergency talks, a senior party official said.
In a defiant address to Greeks after midnight, Samaras said he was ready to press ahead without the leftists.
"I want us to continue together as we started but I will move on either way," Samaras said in a televised statement following the collapse of three-party talks on the future of the ERT radio and television station.
"Our aim is to conclude our effort to save the country, always with a four-year term in our sights. We hope for the Democratic Left's support."
Party officials said Democratic Left leader Fotis Kouvelis had advised the party's 14 lawmakers to pull their two ministers and two deputy ministers out of the cabinet. At least one of the lawmakers was in favour of staying in government.
The row coincided with a new hitch in Greece's international bailout with the discovery of a potential funding shortfall due to the reluctance of some euro zone central banks to roll over their holdings of Greek government bonds.
Ten-year Greek government bond yields rose to their highest since late April, on course for their biggest daily rise since July 2012, while Greek stocks tumbled 4 percent.
Samaras's conservative New Democracy party and its Socialist PASOK ally jointly have 153 deputies, a majority of three in the country's 300-member parliament.
That means they could manage without the Democratic Left, but a departure of the party would be a major blow, making it tougher to pass unpopular reforms demanded by foreign lenders and emboldening the hard left opposition waiting in the wings.
"The government can't last for long in its new shape. The horse-trading will begin, there will be more crises, they won't be able to push reforms," said John Loulis, a political analyst.
"At some point we'll have early elections whose outcome can't be predicted."
Officials from all three parties ruled out snap elections for now, which would derail the bailout programme.
An ongoing inspection visit to Greece by the European Union and the International Monetary Fund needs to be completed as planned in July to avoid funding problems, the lenders said on Thursday. That may require new savings measures to plug the gap.
At least two independent lawmakers have suggested they would back Samaras's government, which came to power a year ago in an uneasy pro-bailout coalition aimed at ensuring Greece stayed in the euro zone after nearly going bankrupt.
The coalition has bickered over a range of issues from austerity policies to immigration, and lawmakers from Samaras's parties have accused Democratic Left of blocking public sector reforms needed to secure bailout funds.
UNDER PRESSURE
The latest crisis began 10 days ago when Samaras abruptly yanked the ERT public radio and television station off air and fired its 2,600 workers, sparking an outcry from his two allies, unions and journalists.
Calling it a "sinful" and "wasteful" hotbed of political patronage, Samaras said the move was necessary to hit public sector layoff targets set by Greece's EU and IMF lenders.
After initially refusing to restart ERT, Samaras said on Thursday he had offered during talks with his allies to re-hire about 2,000 workers at a new broadcaster, a compromise accepted by PASOK but rejected by the Democratic Left.
"We will no longer have black screens on state TV channels but we are not going to return to the sinful regime," he said.
But Kouvelis insisted on behalf of Democratic Left that all workers be rehired, saying the issue at stake was far bigger than state television broadcasts.
"This issue is ... fundamentally an issue of democracy," said Kouvelis. "We are not responsible for the fact that no common ground was reached."
Evangelos Venizelos, leader of PASOK, the mainstream socialist party which has been decimated by Greece's debt crisis and would likely lose more ground in a new election, also called on Kouvelis to stay in the coalition.
"The situation for the country, the economy and its citizens is especially grave," said Venizelos. "We want the government to continue as a three-party government."
PASOK would continue backing the government even without the Democratic Left, party spokesman Dimitris Karydis said.
Greece's top administrative court on Thursday confirmed an earlier ruling suspending ERT's closure and calling for a transitional, slimmed-down broadcaster to go on air immediately.
ERT remains off air despite Monday's court ruling ordering it back on, though workers have continued broadcasting a 24-hour bootleg version on the Internet from their headquarters.
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