While the victory of pro-bailout parties in Greece brought cheer to the markets on Monday, one expert warns it will not go a long way in boosting the debt-laden country’s economic prospects.
“At the margin, it makes a bit of difference, not a huge amount of difference,” Sean Egan, Founding Partner and President of Michigan, U.S.-based ratings agency Egan-Jones Ratings told CNBC Asia’s "Squawk Box”.
He adds that the new government will have to buy citizens' confidence before it can implement any measures to take the economy out of its current mess.
“The government needs to take some tangible efforts to regain the confidence that they’ve lost over the last couple of years. It needs to get the country back on track whereby people pay their taxes, they haven’t been paying their taxes to a large degree recently,” Egan said.
As of late last year, Greece had 60 billion euros ($80 billion) in unpaid taxes, which is around 25 percent of its gross domestic product, according to the European Commission.
Parties committed to Greece's 130-billion euro ($164 billion) bailout by the European Union and the International Monetary Fund won 162 seats in the 300-seat parliament on Sunday in an election that could keep the country in the euro zone.
Markets in Japan, South Korea and Australia, the first to react to the results, all opened higher as investors were relieved that left-wing parties, which had vowed to renegotiate terms of the bailout, had failed to come out on top.
But despite the spot of good news, there’s still a lot of restructuring work that needs to be done, with the main issue of Greece’s debt still unresolved, Egan said. The austerity measures, targeted at cutting the government's debtfrom 160 percent of GDP to a little over 120 percent of GDP by 2020, will still need to be implemented.
He doubted that the new coalition government to be formed by New Democracy and PASOK would be able to implement the reforms. In fact, he thinks Greece will need another bailout soon.
“We don’t believe that Greece is going to be able to shoulder the 200-billion plus euro debt that they currently have, given the fact that the government has a deficit of around 23 billion euros per year and they are paying interest rates on their 10-Year (bonds) near 30 percent….the market is saying they need another bailout,” Egan said. “And we agree with that. The question is when and how that bailout is going to occur.”
If Greece needs another bailout, Europe’s biggest economies, Germany and France will have to shoulder most of the burden, he added. This will increase the two nations’ debt and their governments may not be willing to stomach that.
“France is not in terrific shape. Its debt-to-GDP has grown from about 72 percent two years ago to about 100 percent currently," Egan said. "So that’s something we’re watching as we speak.”
—By CNBC’s Jean Chua.