ATHENS (Reuters) - Greece’s centre-right New Democracy party will try to form a coalition on Monday to back the country’s international bailout after a narrow election victory that eased fears of a sudden exit from the euro.
European stocks and the euro briefly opened higher after Sunday’s vote, and the Athens streets were quiet after New Democracy leader Antonis Samaras pledged to move swiftly to form a government. He was due to meet Greek President Karolos Papoulias at 12.30 p.m. (0930 GMT).
The once-mighty Socialist PASOK party, now reduced to third place, indicated it would support former coalition partner Samaras but had not yet decided whether to join the government or just offer parliamentary backing.
In deep recession, crushed under its huge public debt and facing rising social tensions, Greece faces a daunting struggle to restore a near-bankrupt economy, and a new government could face a new wave of protests after taking office.
“The crisis has been postponed, not necessarily averted,” said Theodore Couloumbis, political analyst and vice-president of Athens-based think-tank ELIAMEP.
“For this government to last it has to show results. You can’t continue with 50 percent youth unemployment and a fifth straight year of recession,” he said.
The radical left SYRIZA bloc, which had promised to tear up the bailout deal signed in March with the European Union and International Monetary Fund, scored strongly in the election, and party leader Alexis Tsipras promised to continue its opposition to the painful austerity measures demanded of Greece.
“I don’t think anything good will come out of these elections,” said Dinos Arabatzis, a 56 year-old taxi driver who voted for New Democracy.
“Whoever is in power now will get burned. Samaras will get burned, and Tsipras will come out much stronger if we go to elections again - that’s what worries me,” he said.
With nearly 100 percent of ballots counted, New Democracy had won 29.7 percent of the vote, ahead of SYRIZA on 27 percent, and PASOK on 12.3 percent.
A 50-seat bonus automatically given to the party that comes first would give a theoretical New Democracy-PASOK alliance 162 seats in the 300-seat parliament, enough for a majority broadly committed to the 130-billion-euro ($164 billion) bailout.
“The result showed people want the euro, but society remains divided. SYRIZA will be a militant opposition, possibly complicating the new government’s efforts,” a senior New Democracy official said on condition of anonymity.
“The new government must deliver a positive development soon - an easing of the bailout terms or a positive sign in the economy - or people will lose trust in a week.”
In the markets, trust had an even shorter shelf life. Though the FTSEurofirst 300 index rose 1.1 percent at the open, the index had shed all those gains before two hours were up, as the underlying problems in the euro zone brought investors back to earth. The euro’s rise also evaporated.
PASOK officials told Reuters that a meeting on Monday would decide how they would support Samaras - whether by participating fully in government, or by voting with the coalition in parliament. The smaller, anti-bailout Democratic Left party was also due to decide on Monday whether it would back the conservatives.
The White House said it hoped the election outcome would lead to the swift formation of a new government that would make “timely progress” on economic challenges.
“We believe that it is in all our interests for Greece to remain in the euro area while respecting its commitment to reform,” said President Barack Obama’s press secretary Jay Carney.
The new government may get some help from euro zone peers relieved that SYRIZA had not won, setting Greece on course for a euro exit with incalculable consequences for the rest of the 17-member bloc.
However, they have offered no prospect of any major overhaul of the bailout agreement, which requires Greece to find 11.7 billion euros in spending cuts in June to qualify for the next loan installment.
German Foreign Minister Guido Westerwelle said the substance of the bailout agreement was “not negotiable”, but he said creditors might be willing to offer some flexibility on timing for some of the targets, given the time lost in campaigning after the inconclusive election on May 6.
“We’re ready to talk about the timeframe as we can’t ignore the lost weeks, and we don’t want people to suffer because of that,” he told German radio on Monday.
However, even if it were granted some leeway, a coalition that won only 40 percent of the vote would struggle to push through reforms in the face of deep public resentment of repeated rounds of tax hikes and pay and pension cuts.
Despite his loss Tsipras, 37, appeared buoyed by the election and rejected calls to join an all-party unity government, saying his party was now the main opposition force and promising to fight the bailout package.
His attitude has raised fears of a return to the anti-austerity protests that have left parts of central Athens pock-marked with angry graffiti.
Underlining the signs of potential instability, the ultra-nationalist Golden Dawn party took 18 seats, repeating its success of May 6 and confirming its status as a force in Greek politics, carried by an angry mood of public protest.
Additional reporting by Dina Kyriakidou, Writing by James Mackenzie; Editing by Will Waterman