Greece held its second national election in six weeks after an inconclusive ballot on May 6 and the subsequent collapse of coalition talks. The conservative New Democracy party came first in a critical election on June 17th amid fears of an imminent Greek exit from Europe’s joint currency. Pro-bailout parties also won enough seats to form a joint government. Central banks stood ready, prepared to intervene in case financial turmoil stuck the region.
A Greek exit from the 17-nation group sharing euro currency may have had potentially catastrophic consequences for other ailing European nations, the United States and the entire global economy. With one party advocating ripping up Greece’s multibillion-euro bailout deal, this election was seen as a vote on whether Greece should stay.
As a result of the news, Asian stock markets climbed early the following day.
Early results showed the New Democracy coming first with 29.6 percent of the vote, holding 129 of the 300 seats in Parliament. The radical left anti-bailout Syriza party had 26.9 percent and 71 seats and the pro-bailout Socialist PASOK party came in third with 12.3 percent of the vote and 33 seats. The extremist far-right Golden Dawn party had steady support, getting 6.9 percent of the vote and 18 seats.
The election results “will probably ease fears of an imminent Greek euro exit,” said Martin Koehring of the Economist Intelligence Unit. “There will probably be a relief rally tomorrow in the financial markets. But the key question is how quickly can a government be formed?”
Stock analysts, however, warned that any bounce for financial markets could be short-lived.
“Treat knee-jerk market rallies with caution,” Neil MacKinnon, a global macro strategist at VTB Capital, advised clients, saying there was still too many questions about Europe’s debt crisis to celebrate the Greek vote.
U.S. looks favorably upon election results
The United States saw the results as highly favorable. “We hope this election will lead quickly to the formation of a new government that can make timely progress on the economic challenges facing the Greek people,” the White House said in a statement.
The parties, with none winning an outright majority, will have to seek coalition partners to form a viable government. Needing a simple majority of at least 151 seats, New Democracy will get the first stab at brokering a partnership.
Negotiations, however, could be tough. PASOK leader Evangelos Venizelos has suggested dumping the usual procedure of each party seeking coalition partners. He said a government must be formed quickly, suggesting a four-party coalition between New Democracy, Syriza, PASOK and the small Democratic Left, which was in sixth place with 6.3 percent of the vote and 17 seats.
“There is not one day to lose. There is no room for party games. If we want Greece to really remain in the euro and get out of the crisis to the benefit of every Greek family, it must have a government tomorrow,” Venizelos said.
PASOK officials said Venizelos would insist on Syriza joining any future coalition, despite its anti-bailout stance – although the move could simply be a negotiating tactic to convince the public that Syriza was unwilling to play a constructive role in pulling Greece out of its crisis.
But Syriza leader Alexis Tsipras, a 37-year-old former student activist, has ruled out such a possibility. Tsipras phoned New Democracy leader Antonis Samaras on election night to congratulate him on his victory and vowed that his party would remain outside the government. “We will be present in these developments from the position of the main opposition,” he said in a speech in Athens.
Samaras has vowed to renegotiate some of the bailout’s harsher terms but insists the top priority is for the country to remain in Europe’s joint currency. “The Greek people today voted for Greece to remain on its European path and in the eurozone,” Samaras said.
Germany remains cautious about future of Greek economy
Germany’s Finance Minister Wolfgang Schaeuble called New Democracy’s victory a decision to “forge ahead” with implementing far-reaching reforms. Germany’s foreign minister said it was important for Greece to stick to its agreements with creditors, but held out the prospect that Athens might be given more time to comply.
Germany, Europe’s biggest economy, has been a major contributor to Greece’s two multibillion-euro rescue packages, but at a cost of demanding tough, highly unpopular austerity and reform measures in exchange.
Koehring said that the amount of tolerance Greece’s international lenders show could be key to future developments.
Some prominent economists such as Nouriel Roubini of New York University’s Stern School of Business believe that Greece must eventually leave to avoid a disaster for the rest of the eurozone.
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