EC and Nato wince at Papandreou victory: Greece's Balkan neighbours are uneasy about the Socialist party's plans for the future

ANDREAS PAPANDREOU'S return to power was greeted with a sharp intake of breath by Greece's European partners and its Balkan neighbours yesterday, amid fears that his flag-waving brand of Hellenic nationalism will escalate tensions in the region. On virtually all points of the compass Greece is at odds with its neighbours and has a habit of making its Nato allies and EC partners nervous.

With his reputation as a free-spending populist, Mr Papandreou could also face the wrath of the EC if he fails to keep Greece on an austerity programme to bring it within the Maastricht criteria for monetary union. But it is the white-hot emotion which Greece injects into its foreign policy concerns that most troubles its partners and Balkan neighbours. Athens already has bad relations with Albania to its north, is refusing recognition to Macedonia in the former Yugoslavia, constantly jousts with Turkey and frets about Cyprus.

To the west, it has antagonised the EC by allying itself with Serbia, because of its Orthodox Christian heritage, and by holding up recognition of Macedonia. The prospect of Athens being in the chair of the European Community for six months beginning next January is another cause for concern. The widespread expectation is that it will use its position to help Serbia shake off its pariah status.

Though old and frail, Mr Papandreou, 74, is still capable of causing trouble and some senior advisers in his party, the Panhellenic Socialist Movement (Pasok), cling to the party's ideology of the early 1980s, when it took a pro-Third World and anti-US stance.

The French conservative government is especially unhappy with the return of Pasok to power and was quick to say so. Commenting on the fact that Mr Papandreou left the economy in a state of near bankruptcy four years ago, Alain Juppe, the French Foreign Minister, said: 'The Greek people decides what it thinks is right. But that said, it is once again an illustration of the fact that people have short memories.'

The initial results from Sunday's election had Pasok with 170 seats and 47 per cent of the vote and the conservative New Democracy with 111 seats and 39.5 per cent. These figures were set to change, however, because of recounts in at least two constituencies. The left-of-centre Synaspismos party needed only another 1,000 votes to get over the 3 per cent threshold and enter parliament under the proportional representation system of redistributing votes. If it suceeds, New Democracy could lose a further six seats, giving Pasok and its allies up to 180 seats in the 300-seat parliament.

The European Community has an additional worry that Mr Papandreou will let the Greek economy off the leash it was put on by the outgoing conservative government and send it into free-fall. The EC is already spending billions of pounds propping up the economy, which is officially the poorest in Europe, by trying to make it converge with the rest of the EC. Those plans will be jeopardised if the Pasok government returns to its old ploy of handing out money like confetti to maintain popularity.

Though at the bottom of the economic statistics league, Greece has a flourishing black economy and much of the country's wealth is untaxed. The realisation in northern Europe that the country is not quite as poor as it makes out is another source of irritation to countries such as Britain which are heavy contributors to the EC budget, some of which ends up as aid to Greece.

This time around Pasok is pledged to maintain the discipline of the Maastricht process, under which the conservatives had started to bring down the country's towering public debt from 17 per cent of gross domestic product three years ago to 8.7 per cent last year.

With its socialist agenda becoming more social democratic all the time, Pasok now has the backing of the Confederation of Greek Industry with which it is discussing an outline 'social contract' between employers and workers.

Good behaviour on the economy will also ensure that the EC plan to spend pounds 13bn on infrastructure projects over the next six years is not interrupted. These 'convergence' funds are already earmarked for projects such as extending the Athens metro, and will provide a useful stimulus to the economy. But Greek politics has a well developed spoils system for the party in power, and in the past EC funds have been diverted to the bank accounts of politicians and their supporters.

Leading article, page 17

The challenge of Greece, page 19