Markets React Poorly to Greek Election

Well the markets didn't react particularly well to the news of stability in Greece, apparently the markets don’t like stability. In the end the results of the election are as follows:

New Democracy: 129

SYRIZA: 71

PASOK: 33

Democratic Left: 17

Communist KKE: 12
Independent Greeks: 20
Golden Dawn: 18

Although the result doesn’t look close between ND and SYRIZA, in a Greek election the first party gets awarded 50 extra seats, in terms of percentage ND was barely ahead of SYRIZA. Now the job of forming a coalition falls to Antonis Samaras, leader of ND; to achieve a majority he will need only 22 extra seats (151 seats required for a majority). It is expected that ND will get the support of pro-bailout party PASOK and marginal support from the Democratic Left.

So there should be no problem forming a coalition, but what is important here is that Golden Dawn still polled strongly at almost 7%. This is despite the assault of two politicians on live television by the spokesperson of the party and the fact that the party continue to back the assailant.

Regardless of the political impact in Greece, the economic impact is what the rest of the world is interested it. Most people were disappointed in the markets reluctance to accept that Greece was at least somewhat stable. Leaders at the G20 summit in Los Gabos, Mexico are meeting to discuss global issues; at the centre will be the world’s 35^th largest economy, Greece.  Almost immediately after the election results were in Merkel issued a statement saying the bailout deal was non-negotiable. This will not go down well in Greece, many Greeks voted for the pro-bailout parties in the belief that they would go to Brussels and negotiate a less tough deal for Greece. But don’t forget Merkel also said there would be no bailouts two years ago; there have been five since then. Most economists do believe that the austerity in Greece is too harsh, even some centre-right economists. Greece needs to be given slightly looser terms, otherwise a third bailout may be necessary. This is something that Merkel will want to avoid at all costs.

The crisis is far from over, it will continue to dominate the news for the rest of the year.