The Democratic Party of Socialists (DPS) is in a good position to continue to dominate the political scene in the wake of a series of electoral successes, including a convincing victory in the parliamentary election in March 2009. The success of the DPS followed the return of its leader, Milo Djukanovic, as prime minister in February 2008 and the comfortable re-election of Filip Vujanovic as president two months later. The opposition, in contrast, remains weak, following a long period of fragmentation. The weakness of the opposition was highlighted by the results of the local authority elections in May 2010, which produced outright victories for the DPS and its allies in several municipalities. However, the main opposition parties contested the local elections as part of an electoral alliance, and if their new-found unity proves durable, they may begin to pose a more serious challenge to the government if the economic situation remains difficult.

The position of the DPS has been bolstered by the smooth transfer of power from Mr Djukanovic to his chosen successor, the finance minister, Igor Luksic, who took over as prime minister at the end of December 2010. In the months before his resignation Mr Djukanovic, who has been a dominant political figure in Montenegro for two decades, made it clear that he intended to leave the government to concentrate on his business interests. By stepping down from the post of prime minister four days after Montenegro had been granted EU candidate status, Mr Djukanovic was able to claim credit for a major foreign policy achievement. Despite leaving the government Mr Djukanovic remains a powerful figure, and this is reflected in the fact that he has stayed on as the leader of the DPS. Even if Mr Djukanovic decides to step down from the DPS chairmanship-perhaps at the party's next congress, expected in 2011-he is expected remain the eminence grise by virtue of his personal prestige and his extensive network of contacts.

To assert his authority, Mr Luksic will need to rely for the foreseeable future on Mr Djukanovic's backing in the face of possible challenges from other senior figures in the DPS, including the party's deputy leader, Svetozar Marovic, who has in the past resisted Mr Luksic's promotion to the post of prime minister. Mr Djukanovic may offer Mr Marovic, who lost his post as a deputy prime minister in the new government, another senior post. Mr Marovic could become the DPS's presidential candidate, although the next presidential election is not due until 2013. Apart from presenting a united front, the DPS leadership will also need to manage relations with the junior partner in the ruling coalition, the Social Democratic Party (SDP), which has in the past urged a more cautious approach towards privatisation.

The new government will regard as its main challenge in the coming months the task of promoting economic recovery, following an estimated modest rebound in 2010 from the sharp contraction in output in 2009, and coping with an expected upsurge in public discontent, which could include ethnic tensions. There is a risk of increased social unrest, as unemployment is set to remain high, before stronger growth returns in 2012. The government will attempt to defuse some of the potentially most dangerous discontent by giving financial support to the troubled Podgorica Aluminium Plant (KAP), where workers staged strikes and protests in 2010 against job losses. The authorities will continue to provide generous social assistance to the KAP workers who will be made redundant as part of a restructuring programme.