By Angel Krasimirov and Tsvetelia Tsolova
SOFIA (Reuters) - Bulgaria's ethnic Turkish party MRF declined to work with a nationalist party on Tuesday, scuppering chances of a broad coalition government and deepening the political stalemate in the European Union's poorest country.
The nationalist Attack has emerged as kingmaker after an inconclusive election on Sunday. But its anti-Roma and anti-Turkish policies and pledges of nationalizations may alarm the EU and make it difficult for other parties to work with.
"There can't be a coalition between MRF and Attack in any form," MRF leader Lyutvi Mestan told national radio station BNR. "This would be an absolute distortion of policy and I will not participate in this process."
Other parties refuse to work with the largest group, the center-right GERB, because of its tarnished reputation after it resigned from government in February but they are struggling to achieve a majority without it.
Turnout in the election was the lowest in Bulgaria's post-communist history at 51 percent, reflecting deep discontent among many voters with a political class they view as corrupt and self-interested, and a lack of viable alternatives.
Bulgaria struggles to supply running water and reliable electricity to some of its citizens, two million of whom have left since the 1989 fall of communism. Many villages are dying, full of collapsing buildings and populated only by the elderly.
Options for a new government are limited because of the shunning of GERB. A combination of the second largest, the Socialists, and MRF - which represents ethnic Turks who make up a tenth of the 7.3 million population - would be just short of a majority. The only other group in the 240-seat parliament will be Attack.
If no group can secure a majority Bulgaria will have new elections - possibly in September - until when an interim government, which has kept debt low in the last three months, will stay in place.
Socialist leader Sergei Stanishev said he would not seek a three-party coalition but would still try to form a government. Analysts say that would mean gaining informal backing from individual deputies from GERB or Attack.
"The lack of stable majorities in the parliament does not necessarily mean a new election," Sofia University political analyst Rumiana Kolarova said.
With jobless at an eight-year high and an average monthly wage of 400 euros ($520), many Bulgarians are deeply unhappy. Seven people set themselves on fire during protests against low living standards and corruption and discontent may spill over again.
The political uncertainty is unlikely to have a significant impact on expected growth of about 1 percent this year but the interim government's limited powers mean it will not be able to push important health, judicial and education reforms to unlock longer term economic potential.
GERB leader Boiko Borisov, a former bodyguard, resigned during the protests and though he managed to hang on to core voters, his popularity was also hit by allegations of wiretapping and illegal ballots against party members.
Borisov has made no public comments on election results and did not attend a scheduled news conference after the vote. Instead, leaders of smaller parties formed from protesters took to the lectern to criticize GERB and demand more spending. ($1 = 0.7703 euros)
(Writing by Sam Cage; Editing by Angus MacSwan)