The broad coalition government formed in the aftermath of two snap elections held in May and June 2012 has not held up well under the strain of implementing a painful austerity program demanded by the EU and the IMF as a condition for two packages of bailout loans. The coalition was already leaking support when the Democratic Left, the smallest partner, abandoned the government in protest over the enforced closure of the state broadcaster, ERT.

The center-right ND and the center-left PASOK are soldiering on with a shrunken majority of just three seats in the 300-member Parliament. Any further defections would create a very real threat of the government’s collapse, a development that would throw the entire debt-reduction program into doubt, fueling a crisis of confidence that would have damaging consequences for the Greek economy and negative implications for the integrity of the euro zone.

Both Prime Minister Antonis Samaras, the leader of the ND, and his PASOK counterpart, Evangelos Venizelos, will have strong motivation to prevent such an outcome, but relations between the partners will be extremely tense, and the two leaders could fail, regardless of their intentions or preferences.

The German government has eased pressure on Greece as Chancellor Angela Merkel shifts her focus to her re-election campaign, but will resume in earnest after the September vote, when the so-called “troika” (the EU, the IMF, and the European Central Bank) will turn its attention to the fiscal plan for 2015–2016. The likely demand for further austerity and reform will again challenge the Greek political consensus.

According to recent polls, the far-left (and anti-euro) Syriza is running neck-and-neck with the ND, while the right-wing nationalist Golden Dawn is solidly in third place with 14.5 percent support. The Communists—a natural ally of Syriza if the latter were to find itself in a position for form a government—is running just about even with PASOK at 7 percent – 8 percent.

Greeks fear the wrenching effects of the reintroduction of the drachma.

Those numbers point to a hung Parliament in the event of an early election, an outcome that would invariably set back the bailout program and increase the risks of a disruptive Greek exit from the euro zone. However, a snap election could produce a surprise.

Polls indicate that fully 70 percent of Greek voters are in favor of retaining the euro, although it would probably be more accurate to say that they fear the wrenching effects of the reintroduction of the drachma. That choice will no doubt affect voting behavior, to the benefit of the ND and PASOK.

In any case, an ND-PASOK government will grapple with chronic bouts of domestic unrest, as the constituencies hurt by austerity measures and structural reforms engage in strikes and protests as a means of venting their anger. Another general strike is imminent, and the risk of a descent into uncontrolled violence cannot be dismissed out of hand. At the very least, labor militancy will contribute to disruptions to normal business operations, especially when providers of public services walk off the job.


The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.

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