The boost given to markets by New Democracy’s victory in Sunday’s Greek election may not last for long, as the struggling Mediterranean country’s problems are far from over.
New Democracy and Pasok, which look likely to form a coalition government with smaller Democratic Left this week, have swapped power between them for almost four decades, and so must take at least partial responsibility for the current Greek morass. And the historical rivalry between the two seems to have been deepened rather than healed by Greece’s recent struggles.
“These are not parties who are used to being in coalition together,” Pavlos Yeroulanos, former minister of culture and tourism for Pasok, told CNBC.com. “It’s going to be very difficult because Pasok will see Syriza taking support from them. Decisions may take too long to make. We could be back here again this year.”
Even those who are likely to form the new government don’t envisage it lasting for the usual length of time for a Greek coalition. Fotis Kouvelis, leader of the Democratic Left, has said he thinks the new government will last until European elections in 2014 – which many on the ground in Athens think is rather optimistic.
Syriza’s charismatic leader Alexis Tsipras vowed to lead a strong opposition on Sunday night. His straightforward refusal to negotiate with New Democracy for a coalition this time around indicates that he may see a bigger prize months down the line, when his party, formed from a coalition of smaller leftist groups, is better integrated and better able to govern.
“What Syriza should do is plan for power. They gain support when they talk about getting into power, and lose it when they talk about being in opposition,” Yeroulanos said. “They could still lose their gains again.”
Much will depend on whether the new government can wring any concessions from the troika of the International Monetary Fund , European Central Bank and European Commission, a group that is in charge of its bailout. Troika officials will arrive in Athens once a new government is formed, and it is hoped that they will agree to give Greece more breathing room on their repayments of the 240 billion euros ($305 billion) bailout.
There were already signs of thawing from Germany, viewed as the most pro-austerity of Greece’s European partners, on Monday. “It is clear to us that Greece should not be over-strained," German Deputy Finance Minister Steffen Kampeter told German TV station ARD.
The troika is likely to compromise on this year’s budget deficit target but insist on measures for continued consolidation in next year’s budget, according to analysts at Unicredit – a concession which could ease the pressure for the next six months, but will keep worries about Greece being governed outside its borders to the forefront. Concerns about Greece being ruled from Berlin or Brussels have helped propel far-right Greek party Golden Dawn into its biggest-ever share of the vote.
Any measure to promote growth in jobs would be welcomed by a population struggling with 22.6 percent unemployment.
“So far the problem has relied on revenue management and across the board cuts. Hopefully that will change now because the new government will have to come out with new proposals,” Miranda Zafa, former board member at the IMF and chief executive of E.F. Consulting, told CNBC Monday.
While Sunday’s election removed the immediate threat of Greece having to default on its debt repayments and crash out of the euro , its fundamental economic and structural problems remain.
“It is difficult to get changes through quickly because of the bureaucracy,” Yeroulanos said.
Many on the ground believe that there could be another election by the end of the year.
“We need to be cautious because everything is going to be extremely difficult from now on,” Yeroulanos warned.
Written by Catherine Boyle, CNBC. Twitter: @catboyle01