Markets up after pro-bailout party wins Greek election

European stock markets have risen after Greece's pro-bailout New Democracy party won the country's latest general election.

by Michael Northcott
Last Updated: 19 Aug 2013

The world has breathed a tentative sigh of relief after Greece’s pro-bailout (and therefore pro-austerity) party won a narrow election victory over the weekend. The world has been waiting for Greece to sort out a new government so that that the security of its vast debts with European banks can be gauged, especially after the last election in May gave an inconclusive result. But on Sunday, the New Democracy party, which supports the bailouts given to Greece by the EU and the IMF, won 29.7% of the vote. Following the news, the French Cac 50 and German Dax indexes were both up 1% this morning. 

Lenders and major banks were concerned ahead of the election, because if the anti-austerity Syriza party had won, Greece might have crashed out of the euro taking a string of major eurozone banks down the drain. But because of a rule in the Greek parliament that gives the leading party 50 extra seats to secure enough power to govern, New Democracy came out firmly on top. It takes 129 seats in the 300-seat Greek parliament, with rivals Syriza and Pasok (socialist) taking 71 seats and 33 seats respectively.

The relief was felt further afield, too, with Japan’s Nikkei 225 and South Korea’s Kopsi both rising 1.8%, as well as Australia’s ASX 200- index, which increased 1.9%. But the delight could be short-lived, seeing as Spain is still in a mess, teetering on the edge of needing a major international bailout. It is a much larger economy than Greece – the fourth largest in the eurozone – and bailing it out would take a much larger wedge of cash and carry a lot more risk. Bond yields remain at record highs – and despite the Greek election result, are already back at 7%, widely seen as a threshold past which lenders start to flee in search of safer bets…

But in the meantime, the people of Greece have spoken, and they have (albeit narrowly) chosen austerity, at least if a coalition government can be formed by the New Democracy leader, Antonis Samaras. Debts payable for the country now include €240bn to the EU and IMF, and the conditions of being allowed the bailouts included tough austerity measures. Bearing in mind that this total does not include untold private debt such as mortgages, overdrafts and credit cards, the country is definitely in a bind for the foreseeable future.

The repercussions of Greece’s crisis are now being felt in developing economies such as India and China, whose export markets have shrunk in the last six months. But with a new Greek government committed to settling the country’s debts, hopefully some stability can be found in the coming months. And the spindliest bit of growth really would be welcome, too…

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