With pro-bailout parties discussing the formation of a new government in Greece, Channel 4 News looks at what happens next in the euro saga.
Antonis Samaras, leader of the centre-right New Democracy party, has been given three days by the Greek president to put together a government and is meeting the leader of the centre-left Pasok party on Monday.
Both parties stood on a platform of supporting the EU/IMF bailout for their country that is conditional on Greece cutting spending and raising taxes.
Had the far-left Syriza party beaten New Democracy in the poll, it would have torn up this austerity package, threatening the continuation of financial support that is keeping Greece afloat. This would have put an immediate question mark over Greece’s membership of the euro.
But there are still many challenges ahead that could force the country out of the single currency, with implicatons for Spanish and Italian participation and ultimately the survival of the euro project.
According to Theodore Couloumbis, from the Athens think tank ELIAMEP: “The crisis has been postponed, not necessarily averted. For this government to last it has to show results. You can’t continue with 50 per cent youth unemployment and a fifth straight year of recession.”
Antonis Samaras has said he wants to form a coalition government that reflects the “national consensus”. The problem is that Greece is deeply split over the austerity measures it is enduring in return for EU and IMF support.
The crisis has been postponed, not necessarily averted. For this government to last it has to show results. Theodore Couloumbis, ELIAMEP
Pro-bailout parties achieved 42 per cent of the vote in the elections, while the antis mustered 52 per cent. New Democracy only just pipped Syriza to top spot and will not participate in the new government, with leader Alexis Tsipras convinced it will not last long.
New Democracy is concerned by Syriza’s strength and ability to frustrate its efforts: a party source told Reuters that an easing of the bailout conditions was essential “or people will lose trust in a week”.
Raoul Ruparel, head of economic research at the open europe think tank, told Channel 4 News he believed a national unity government in Greece was “impossible” and new elections would be called in six to 12 months’ time.
Panis averted, but chronic Greek pain continues. Read Economics Editor Faisal Islam.
As part of its agreement with the EU and IMF, the new government must identify 11.7bn euros of budget cuts in June.
It is behind schedule in its austerity programme, by two or three months according to Mr Ruparel, and there are doubts Greece will be able to keep up the momentum of cuts that are keeping it in the eurozone but causing hardship and misery for many people.
So what can be done to make life easier for the Greeks, keeping them in the euro and avoiding the wider contagion that would follow a default?
Antonis Samaras said during the campaign that he would be seeking concessions if elected and he repeated that on Monday.
A chaotic exit from the euro is becoming more likely. Gordon Brown
Raoul Ruparel said: “I think there will be some compromise, some adjustments on the edges of the programme, and some relief for Greece that the parties will present as a renegotiation, but Greece will continue to miss targets.”
As Europe’s strongest economy, Germany has the whip hand here, and the noises from Berlin are mixed. While to Foreign Minister Guido Westerwelle, the “substance of the reforms is not negotiable”, Germany is “ready to talk about the timeframe”.
His deputy Steffen Kampeter went further, saying: “It is clear to us that Greece should not be over-strained.” . Didier Reynders, the Belgian deputy prime minister, was also sympathetic. “We can negotiate with the Greeks, there is space,” he said.
Concessions, according to open europe, are likely to include lower interest rates and extended repayments periods.
After the election results were announced, the markets reacted positively before dipping. Greece may have bought itself some time, but Spain is now in the firing line, despite a 100bn euro bailout of its troubled banks just a week ago.
On Monday, it was paying interest of over 7 per cent to borrow money on the money markets, a rate that forced Ireland and Portugal to seek bailouts.
To Raoul Ruparel, Spain is “a big problem”. He had expected the 100bn euro bank bailout to “buy a bit more time than it did”, but believes the Spanish banking sector needs a great deal more than this if the markets are to be convinced that its problems have been properly addressed.
The fear is that contagion could spread to Italy, a much bigger economy, but Mr Ruparel is optimistic. “I’m not that concerned about Italy because I don’t see a short-term trigger for pushing it into a bailout. It is a huge economy and can stand high interest rates for much longer than other governments,” he said.
Former prime minister Gordon Brown is not reassured by the Greek elections. With G20 world leaders meeting in Mexico, he said that
“a chaotic exit from the euro is becoming more likely”, with Portugal and Ireland likely to turn again to the IMF for help, possibly followed by Italy and France.
No-one here seems to think this summit by the foaming Pacific is going to replicate the London G20 summit of 2009 (for his supporters, the crowning achievement of Gordon Brown's premiership), which managed to steady nerves after the banking crisis. Political Editor Gary Gibbon is at the G20 summit.