In July, six months after Greece elected a left-wing, anti-austerity government, the country came perilously close to leaving the euro. So it's easy to understand why markets are nervous at the prospect of Portugal, a poster child for European austerity, replacing its reform-friendly, center-right government with a left-wing, anti-austerity coalition.

The yield on 10-year Portuguese government bonds jumped 53 basis points to peak at 2.83% on November 9 since the ruling Social Democrats lost their majority in the Portuguese Assembly in elections held October 4. (Yields have since dropped to 2.49%). The stock market rose for a few days after the election, but it is down nearly 4% since then. Despite the market's fears, however, Credit Suisse thinks it unlikely that Portugal is destined to follow in Greece's footsteps.

In October, the Social Democrats (the main center-right party) won the most votes of any party, and Portugal's president reappointed Prime Minister Pedro Passos Coelho. It soon became clear, however, that the Social Democrats couldn’t form a stable government.

Meanwhile, the Socialists, who received the next-largest share of votes, made a deal with the Communist Party and the Left Bloc, the latter of which has been compared to Greece's populist Syriza party, to form a coalition with enough votes to govern.

On November 10, the left-wing alliance pushed through a no-confidence vote to topple Coelho's government. Portuguese President Aníbal Cavaco Silva can now either appoint a caretaker government headed by Coelho, which would need to find common ground with the Socialists and others to get anything done, or allow the left-wing alliance to take power. A third possibility: the Socialists accept Coelho's challenge to allow early elections that might produce a more stable configuration in the Assembly.

No matter which short-term outcome prevails, political instability is most likely ahead. The three left-wing parties have major policy differences, and Credit Suisse believes a coalition government would last only a few months. The Left Bloc and Communist Parties are anti-austerity Eurosceptics. The Communists campaigned on nationalizing Portuguese banks, dropping out of NATO, and restructuring foreign debt. The Socialists are more moderate.

Antonio Costa, the leader of the Socialists and presumptive prime minister in a left-wing coalition government, has said the new government would not follow Greece's example by forcing a confrontation with European creditors over debt restructuring.

The Socialists do want to ease off austerity, however. Over the past few years, the government has hiked taxes, overhauled state-owned enterprises, privatized assets, laid off 10% of government workers, cut public-sector salaries, and passed a slew of private-sector reforms, including changes to bankruptcy and labor laws.

Coelho speaking with the media after a meeting with Portugal's president in Lisbon.

The results have been impressive. Portugal exited its €78 billion European bailout in May 2014, though the so-called troika of the European Central Bank, the European Commission, and the International Monetary Fund continues to monitor the country's finances and economic policies.

Setting aside some one-time spending on big-ticket items over the past year, including a bailout for a failing bank, Portugal's budget deficit is at 3.4%, down from 4.8% two years ago. Borrowing costs have also fallen dramatically. Though government debt yields climbed close to 3% after the elections, they are nowhere close to the double-digit rates of 2012.

The country's economy has been growing steadily since 2013, and Credit Suisse predicts higher growth in Portugal than in the eurozone in 2016, 2% to 1.8%. Portuguese labor costs have fallen sharply since the European debt crisis, and exports have soared. By the end of 2013, exports accounted for more than 40% of the economy, up from less than 30% before the crisis.

But the recovery isn't only externally-driven. Growth in private consumption accelerated to 3.2%, year-over-year, in the third quarter of 2015, the largest increase since 2010. Consumer confidence has been climbing since 2013, with unemployment falling from a peak of 17.5% in January of that year to 12.2% in September — still high, but a marked improvement no less.

A left-wing government might raise government workers' salaries and reduce those taxes that the previous administration raised in an effort to reduce the deficit, but European monitoring and the Socialists' stated desire to avoid a Greece-style crisis make a complete reversal of austerity measures unlikely.

Portugal's private-sector reforms are also likely to stay. "Even if a leftist coalition were to govern, we believe the Portuguese Socialist has a sufficiently strong European DNA to avoid more fundamental uncertainties that were present in the Greek crisis earlier this year," say Credit Suisse analysts in a recent report. Finally, the European Central Bank's quantitative-easing program is likely to keep borrowing costs relatively low. Portugal has done a considerable job digging itself out of an economic and fiscal crisis, and a change in government isn’t likely to derail that progress.

The Financialist is a digital magazine presented by Credit Suisse that looks at the trends and ideas that drive markets, businesses and economies.