The swearing-in of Antonis Samaras as prime minister after elections last Sunday ended weeks of uncertainty that rattled financial markets and threatened to push near-bankrupt Greece out of the euro zone.
Samaras, a Harvard-educated economist from a prominent Greek family, will head an alliance of his New Democracy party and Socialist PASOK rivals - the same discredited establishment parties which have dominated politics since 1974.
"I am fully aware how critical this time is for our nation," Samaras said after he was sworn in at a ceremony conducted by robed Orthodox priests at the presidential mansion
"I know very well that Greek people are hurt and need to regain their dignity. I know that the economy must quickly recover to reestablish social justice and cohesion."
The coalition parties are in a race to overcome public disgust with their records, face down an emboldened leftist opposition that narrowly failed to win the election, and persuade reluctant euro zone partners to ease the terms of a bailout that has caused deep economic suffering.
The cabinet has yet to be named, although a technocrat banker is expected to become finance minister.
Party leaders said a team would be formed to renegotiate the terms of the hated 130 billion euro ($165 billion) rescue plan with the European Union and IMF, setting up a showdown with the lenders led by paymaster Germany who say they will adjust but not re-write the document.
New Democracy and PASOK have little history of cooperation, having alternated in office from the fall of military rule in 1974 until last year, when the economic crisis forced them to share power in a short-lived national unity government.
Their coalition will be the first in Greece in decades with an unrestricted mandate - last year's unity government and a coalition that took power in 1989 both had limited powers.
The alliance will also be backed by the small Democratic Left party, whose leader Fotis Kouvelis called on the government "to gradually disengage from the terms of the bailout that has bled society".
An official from one of the three parties in the coalition said that they had agreed to name National Bank Chairman Vassilis Rapanos as finance minister. Rapanos is an economics professor who worked closely on reforming the economy with a previous Socialist government.
Other ministers were expected to be named later.
HUMILIATED PEOPLE
Greece's crisis has left its people not only poorer but feeling humiliated.
As the political leaders wrapped up talks on a government, hundreds of Greeks - many until recently members of the prosperous middle classes - gathered under the scorching sun in a big park in Athens for free vegetables offered by a farmers' association from the island of Crete.
"Not even in my worst nightmares could I imagine that I would end up like this - waiting in line for food," said Eleni Moshidou, 56, a mother of three unemployed sons who was fired from a law firm when the crisis broke out in 2010.
"I feel humiliated. Our politicians brought us here."
Just over a month after an inconclusive election raised fears that Greek would have to leave the euro zone, New Democracy narrowly beat the radical leftist Syriza bloc that wants to scrap the bailout deal which most Greeks blame for worsening a recession which is in its fifth year.
Syriza promised on Wednesday to be a "combative" opposition force that fights on behalf of Greeks struggling through wage cuts and spending cuts that have sent unemployment to record highs.
But the new government's first battle is likely to be with foreign lenders as it tries to convince them to sign off on the next instalment of aid and allow more leeway on the austerity pledges.
PASOK leader Evangelos Venizelos warned of a "big battle" in Brussels to craft a new bailout deal that would promote growth and contain unemployment. "The most critical issue is the formation of the national negotiation team and ensuring that it is successful," he told reporters.
Both PASOK and Democratic Left have refused to place senior politicians in the cabinet and could nominate technocrats instead, a move which potentially weakens their commitment to the new government.
"This government will have a very short life-span. It will disappoint expectations and its support will erode quickly," said independent political analyst John Loulis. "It will be a government entirely run by New Democracy; its two smaller partners have already weaseled their way out of it".
SUSPICIOUS
Europe's debt crisis began in Greece. Two and a half years and four bailouts later - two of them for Greece - there is no end in sight.
Germany, the euro zone's biggest economy, remains suspicious of Samaras, who switched from opposing the bailout when PASOK was in power to cautious endorsement when the Socialist government began to unravel late last year.
"What is needed is more decisiveness in swiftly implementing the measures which have already been agreed," German Finance Minister Wolfgang Schaeuble told the weekly Die Zeit.
German Chancellor Angela Merkel called Samaras to wish him "luck and success for the difficult work ahead of him" and to invite him to Berlin, a German government spokesman said.
European Union officials have signalled that some adjustments are likely to a programme that has slipped behind target in the weeks of political uncertainty following the May election and a deeper than expected recession.
One in five Greek workers is jobless, tens of thousands of businesses have closed and a growing numbers of homeless are living on the streets.
A Reuters poll showed that only three out of 19 economists thought Greece would leave the euro zone following the conservative victory in Sunday's election, but predicted more economic pain ahead.
