There seems to be a broad consensus—both among voters and in the markets—that this week's European parliamentary elections don't matter very much.
In Greece, the elections will determine the future of the uneasy coalition government led by Prime Minister Antonis Samaras since June 2012. If the two coalition parties—New Democracy and Pasok—get a lower combined vote than the radical left-wing opposition party Syriza, the government would be in real trouble, acknowledges a senior minister. The outcome could be early national elections and a prolonged period of political instability.
As things stand, that seems unlikely: The latest polls suggest New Democracy will get 21% of the vote and Pasok 5.5%, compared with 21.5% for Syriza.
But even this may not be enough to guarantee the coalition's survival.
Pasok and its leader, Evangelos Venizelos, have become lightning rods for public anger for the crisis; its current share of the vote compares with 12% in the June 2012 election and 39% in 2009.In response, Mr. Venizelos last week said he would quit if the public didn't give his party sufficient backing, without specifying how low Pasok's vote share would have to fall to trigger his threat.
From an economic perspective, there can be little doubt that fresh political turmoil would pose a serious risk to what is proving to be a remarkable turnaround in Greece's fortunes this year.
Following a smaller-than-expected contraction in the first quarter of 2014, the economy looks on track to return to growth in the third quarter, with growth of at least 0.6% expected for the full year.
Unemployment has fallen for six months in a row. The budget—excluding interest payments—and current account are both in surplus, paving the way for the euro zone to honor a commitment to ease the burden of Greece's official-sector loans and put its national debt on a long-term sustainable footing.
In the past few weeks, international investors have poured an astonishing €15 billion ($20.54 billion) into government bonds, bank shares and bank bonds—a vote of confidence that Greeks hope is a sign the worst is finally over.
At the same time, it is becoming apparent that the crisis has brought about many long overdue reforms, eliminating privileges for special interest groups, improving transparency and removing barriers to competition in many sectors, including retail, transport, energy and professional services.
As a result, prices are finally falling for many items, easing the pressure on the cost of living for a population hit by savage cuts in income. The labor market is more flexible and entrepreneurs say it is easier to start a business. The full benefits of many reforms will only start to become apparent as the economy picks up.
The stalled privatization program appears back on track, with ports, airports, railways and marinas currently for sale. There has been a surge in inquiries from foreign investors in recent weeks, according to the privatization agency.
Importantly, the newly recapitalized banking sector appears determined to tackle its mountain of bad debts, now expected to peak toward the end of this year at over 35% of all loans. All four major banks have set up internal "bad banks" to speed up the liquidation of insolvent companies and restructuring of viable companies, essential to allow healthy companies to invest and grow again.
In a landmark deal, Piraeus BankTPEIR.AT -13.69% last week executed an aggressive debt-for-equity swap that gave it a controlling stake in Marfin Industrial Group, previously controlled by one of Greece's leading oligarchs.
What's more, Mr. Samaras appears determined to push ahead with his reform program, despite concerns among some euro-zone officials that easier financial conditions will lead to complacency.
A new bankruptcy code expected in October will give the banks further powers to restructure bad debts. The government says it is committed to implementing the remaining recommendations out of 329 proposed last year by the Organization for Economic Cooperation and Development. Substantial reform of the public administration is planned to improve its efficiency. Mr. Samaras has also proposed sweeping constitutional reforms in response to public anger over the current system.
But can Mr. Samaras persuade voters to give him more time?
After six years of recession and with unemployment still at 26%, it is hard to underestimate the rage that Greeks feel toward the two coalition parties that dominated politics for decades.
Yet at the same time, polls indicate that voters too are wary of unleashing fresh instability: 70% of voters say they don't want new elections, 69% want to stay members of the euro zone and only 30% believe that the radical leftist Syriza party led by Alexis Tsipras is ready to lead the country.
Meanwhile a new party, To Potami, is currently running third in the polls at 8.5% despite offering no policies, only new faces and a promise to cooperate with other parties.
What's clear is that Mr. Samaras is determined to avoid new elections. Even if Mr. Venizelos quits, Mr. Samaras will seek a vote of confidence in Parliament that he would expect to win, appealing to smaller parties and even some of Mr. Venizelos's Pasok colleagues for whom early elections would be political suicide, according to someone familiar with his thinking.
Mr. Samaras may fancy his odds of winning such a vote. But the next few weeks could be bumpy.
