Greece's new coalition government faces a tough winter as it seeks to implement reforms needed to secure vital EU/IMF bailout funds, while facing a public angry with the pain inflicted by wage cuts and tax hikes.
After weeks of roller-coaster politics nearly took Greece to the abyss over referendum plans, the interim government led by former ECB vice-president Lucas Papademos will try to keep the country afloat until elections penciled for February19.
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Opinion polls show that neither of the two main parties would win an outright majority, raising the threat of lingering political uncertainty, while unions have pledged to step up protests next year.
A protracted recession, record-high unemployment and the growing crisis in the whole euro zone further complicate efforts to put Greece back on track.
Following are the main political risks ahead:
UNEASY COALITION, TOUGH REFORMS
Greece has bad memories from a couple of short-lived attempts at coalition governments over the past decades. The socialist PASOK and conservative New Democracy struggled to agree on a common platform and will be jockeying for position ahead of the election.
The difficulty in getting New Democracy leader Antonis Samaras to sign a letter committing to abide by the EU/IMF bailout shows how tough it will be for the cabinet to conclude a complex debt swap plan or implement reforms.
The EU and the International Monetary Fund, which saved Greece from bankruptcy last year, have criticized it for dragging its feet on a much-needed restructuring of the public sector and opening up the economy.
Greece will miss its initial fiscal targets for 2011. EU, IMF and ECB inspectors, who started a new inspection of the country's finances and reforms on December 12, say it must step up its efforts if it is to keep getting aid.
What to watch:
- How will the parties in the coalition behave? Will New Democracy keep backing the government and its talks with the EU and IMF despite its disagreements with austerity policies? Will the looming elections slow the reform drive?
- Will the government manage to implement reforms and keep lawmakers on board to push them through, a key condition to get a new 130-billion-euro ($172 billion) EU/IMF aid program?
- The EU/IMF inspection visit, which is scheduled to be wrapped up by the end of the week and will focus on preparing the new bailout plan and evaluating its impact on banks.
- How will Socialist PASOK and conservative New Democracy do in opinion polls ahead of the February general elections. One poll showed that support for both has dropped since September.
- Will unemployment, which hit a new record high of 18.4 percent in October, keep rising, making it harder for Greeks to tolerate the austerity medicine? Upcoming macroeconomic data include January-November budget deficit data expected this week and Q3 unemployment on December15.
Polls show most Greeks, tired with corrupt politicians, back their new technocrat prime minister and would like him to stay in place longer rather than have snap elections on February 19.
But their support comes with a condition: no more belt-tightening that hits the poor.
The first major test for Papademos's rule, a march of more than 30,000 people beating drums and waving red flags on November 17, signaled just how bitterly a restive public will fight further tax rises and spending cuts.
There are still daily protests with workers blockading ministries and other government buildings, although unions are expected to halt labor action during the Christmas period.
Most Greeks expect their economic situation to worsen next year as the government applies austerity to slash deficits, but despite the pain they want to stay in the euro zone.
Analysts say that "a silent anger" is growing among them. If fiscal efforts do not bear fruit and if the new government fails to meet targets, protests may turn violent again.
What to watch:
- How much time will the public give Papademos? How many people will join the next walkouts? How will the government react if protests draw big crowds and turn violent?
- How will the government fare and when will snap elections take place?
- Will guerrilla attacks -- that have in the past included parcel bombs and a powerful explosion outside the Athens stock exchange -- resume after a year without a major strike? This is a rare break since the 2008 police shooting of a 15-year old student brought a new wave amid Greece's worst riots in years.
DEBT RESTRUCTURING, EURO CRISIS
The head of the IMF has warned that Greece's adjustment program is in a difficult phase, with reforms moving slowly amid a protracted recession and a growing crisis in the rest of the euro zone.
Athens is also struggling to agree with banks and insurers on a debt swap plan key to slash its debt and bring it back to a more sustainable path.
What to watch:
- Progress in complicated talks with banks on private sector participation in a debt roll-over plan.
- After the EU and IMF agreed to release a 8-billion euro tranche of aid despite Greece missing key targets, will the debt-choked country qualify for its second, 130-billion euro bailout?
- How the crisis develops in the rest of the euro zone and the impact it has on Greece.
- Any more details on how Greek banks will be affected by the debt restructuring plan and how much recapitalization they will need. After the country's second- and third-largest lenders Eurobank <EFGr.AT> and Alpha Bank <ACBr.AT> agreed to merge to better weather the crisis, will other banks follow?