ATHENS, Greece – After more than two years of financial crisis, international bailouts, a huge debt writedown and Europe's harshest austerity program, Greek voters have been given a chance to hit back at the parties that got them into this mess.
This Sunday, an electorate fuming at repeated income cuts, tax hikes and rapidly rising unemployment is to vote in parliamentary elections. It's expected to abandon old political loyalties and give no party an outright majority. But this could well leave Greece without a government at the time when it needs it the most — and jeopardize the program of international bailouts the country depends on to secure its place in Europe.
After years of profligate government spending and dismal fiscal stewardship, in 2010 Greece was priced out of the international markets from which governments borrow. To keep the country afloat, it took two separate rescue loan agreements with its European partners and the International Monetary Fund worth more than €240 billion ($317 billion), and the biggest debt writedown in history that wiped more than €100 billion ($132 billion) off private investors' holdings.
To secure the bailouts, the Greek government had little choice but to agree to a harsh round of austerity measures that cut everything from wages to pensions and healthcare. It also had to promise to dismantle the protected trades that choked up the economy.
Blame for the problems that led to the rescue has been placed firmly with the two main political parties that governed Greece over the past four decades — conservative New Democracy and Socialist PASOK — both of whom have been accused of uncontrolled overspending, cronyism and lack of accountability. Since November 2011, when Socialist Prime Minister George Papandreou was forced out by his own lawmakers, the country has been governed by a coalition government led by caretaker Prime Minister Lucas Papademos. During that time, Greece managed to secure the second bailout and debt relief deal.
Papademos called the general election in April after pushing the cuts and reforms through parliament.
Over the past two-and-a-half years, however, the parties that agreed on the bailouts and debt writedown appear to have lost nearly half their support, according to recent polls. Voter hostility to the cuts and reforms is very high. In recent months, pro-austerity politicians have been jeered at, harassed and pelted with yogurt and coffee.
"When we compare what people voted (last time) with what they say they will do now, everyone is heading in all directions. Anything goes," said political analyst and veteran pollster Elias Nicolacopoulos. "At least half the population will change tack and vote for another party."
If, as expected, neither of the main parties secure enough votes to form a government, building a new coalition could prove a Herculean task. Conservative ND, for example, is threatening to force repeated elections until it wins a governing majority.
Aggelos Tsakanikas, head of research at the Foundation for Economic and Industrial Research, says Greece can't afford repeat elections because the ensuing instability would hammer relations with its creditors.
"We do not have time to get into a wave of elections and negotiations," he said. "We need a new government, a reformist government to ... (set) the country on a correct path again."
A protracted political crisis could sink the recession-bound country, which must constantly meet austerity and reform targets to keep drawing its vital bailout funds. And in June, whoever governs in Athens must push through a new €14.5 billion ($19 billion) austerity package for 2013-14.
Further Greek financial problems would compound Europe's debt crisis at a time when investors are worried that struggling Spain, Europe's fourth-largest economy, might need a bailout the region could ill-afford.
The EU and the IMF have stressed the need for Athens to keep up the pace of reform after the elections. Any slip-up in implementing the measures could potentially halt the flow of rescue loans.
But many analysts believe the austerity program is too harsh to produce results, and expect the new government will have some leeway for adjustment as long as it keeps to its overall targets.
JPMorgan analyst David Mackie said that if a stable coalition is formed, the new government would most likely seek to renegotiate "the contours" of Greece's bailout, but in a way acceptable to bailout creditors.
"We do not expect an outright rejection of the program which would significantly raise the likelihood of Greece leaving the euro area," he said.
Both main parties have pledged to respect existing bailout commitments, with minor tweaks. PASOK is advocating a one-year extension in meeting deadlines, while ND is promising an income boost for the worst-off pensioners, large families and farmers.
"No program can work in a society that's breaking up," conservative leader Antonis Samaras said.
Tsakanikas said Athens must first show results with structural reforms, privatizations and removing bureaucracy.
"Then we could ask for some extensions in the targets that have been set," he said. "I'm not talking about a huge re-evaluation."
Nicolacopoulos believes Greece can meet its savings targets without further income cuts, by shifting the focus to wasteful spending and tax evasion.
"If the new government needs some help, it will not be in meeting its targets but in how it implements the necessary policies," he said. "It won't be the end of the world if the measures taken in June stretch to include 2015."
Nicolacopoulos said Greece's bailout program was not at threat from anti-austerity parties since they would likely not be needed to form a coalition, as much as from popular resentment.
"Whether the anger continues will depend on economic policies," he said. "I think the country has reached its limits with fiscal adjustment, and cannot take further pressure as it is at the point of exploding."
Nevertheless, analysts are hopeful that a strong pro-bailout coalition government can be formed.
"I think the two leading parties and other smaller parties understand what the stakes are," said Tsakanikas. "These are by far the most important elections in the past 20 years."