Greece, the political hurdle

• The Greek economy is about to renew with growth 
• But political hurdles remain down the road

The Greek economy is doing better. Galvanized by a record tourist season, activity is about to rebound after six years of contraction. Recent success on fiscal consolidation also underpins confidence. The Greek state is now posting a primary budget surplus (1.5% of GDP expected this year), a performance that could open the door to further financial concessions promised by its official creditors. Outlook is thus improving. But risks remain. After six years of crisis, legacies are important. Activity is about 25% below its pre-crisis level, unemployment rate skyrockets at 27%, the real burden of debt is made heavier by falling prices. Against this backdrop, the political climate is particularly tense. The ruling New Democracy-PASOK coalition has only a two-seat majority in Parliament. It is threatened by the fast-rise of Syriza, which topped the polls in recent European elections by promising it would break up with the Troika and default on part of the debt. Syriza could provoke anticipated elections as early as February 2015 when the Greek Parliament is to vote for a new President of the Republic. A majority of three-fifth is needed, something Syriza could impede, leading to new general elections. Such a scenario would have the potential to derail the still-weak recovery and delay debt negotiations. The campaign seems to have already begun. Bolstered by its return on capital markets earlier this year, the government recently announced it could forego remaining IMF loans and exit its bailout. A perspective judged premature by the markets: 10-year yields breach 6% this week, recalling that improvements in Greece remains fragile.