The next prime minister will lead Greece until elections in late February, giving Europe a new partner who officials hope will float above the rough-and-tumble arena of Greek politics.
“After a difficult week, we now have a new political situation, a new political frame, in Greece,” Finance Minister Evangelos Venizelos told reporters Monday on his way into the Brussels meeting. “This is the proof of our commitment and our national capacity to implement the program and reconstruct our country.”
Prime Minister George Papandreou, who shocked Europe last week with a call for a referendum on a European bailout plan for Greece, was expected to resign as soon as his successor was named. He reversed himself on the bailout referendum after European leaders told him that he was jeopardizing Greece’s future in the euro zone.
Two academics were floated as possible successors to Papandreou in Greek media reports Monday: Lucas Papademos, 64, a former vice president of the European Central Bank, and Nikiforos Diamandouros, 69, currently ombudsman of the European Union. Both would be bridges between the European Union and Greece, and neither is seen as especially partisan.
The next months will present a difficult test for a temporary government that comes to power in the middle of a raging financial crisis. While the forced marriage of the two major political parties could produce deeper support for unpopular reforms, squabbling between them could also hamper their ability to act quickly should the situation demand it, analysts said. In addition, they said, elections scheduled for Feb. 19 will leave little time before politics takes an even larger role than it has thus far.
Those challenges could deepen as Italy edges to the brink of debt troubles. Some analysts said Europe’s hard line on Greece last week was intended to send a message to Italian Prime Minister Silvio Berlusconi that he needs to implement painful reforms of his own if his country is to survive its economic turmoil. Italy is the world’s eighth-largest economy — more than six times as large as the Greek economy — and Italian debt is among the most widely held in the world, meaning that any trouble paying it could make Greece’s struggles pale in comparison.
Greece still faces many hurdles, including — most important for Europe — passing the Oct. 27 bailout plan through Parliament with 180 of 300 deputies supporting it, something the two main parties have committed to do.
European officials said Monday that no new bailout money will be given to Greece until the plan is approved. The Greek government has said that it will run out of funds by mid-December without assistance.
The Greek parties also need to negotiate a complex, voluntary deal with the nation’s bondholders to write off half the value of the debt, and must try to raise tax revenue and privatization proceeds. Both are considered tremendously difficult tasks as Europe’s fiscal picture grows ever more precarious.
“It’s impossible, it’s detrimental, the levels of uncertainty,” said Costas Mitropoulos, who is in charge of raising billions of dollars by selling off many of Greece’s state-owned businesses and properties. “What works against us is that with the uncertainty around the world, investors are shy of anything, not just Greece.”
Analysts cautioned that Greece could still wind up running aground. The two main political parties have been bitterly at odds for years, and past unity governments give little reason for hope.
“The relief provided by this new coalition agreement is likely to be temporary,” said Wolfango Piccoli, an analyst at the Eurasia Group, in a research note Monday. The upcoming elections, he said, could become a “source of distraction.”