As noted this morning, the Greek political parties nominally in favor of preserving the nation’s agreement with European rescuers prevailed in yesterday’s election, preventing the so-called eurozone Grexit that may have followed a victory by the anti-bailout Syriza party.
Now comes the hard part: New Democracy, the center right party that won 29.7 percent of the vote and 129 seats in the 300-member Greek parliament must form a governing coalition that can summon the will to continue with austerity measures necessary to ensure the disbursement of EU rescue funds. The Pasok party—another important pro-bailout faction—would seem a likely partner, though as John Aziz points out at Zero Hedge, there may be some gamesmanship at play:
The pro-bailout socialists Pasok have thrown a monkey wrench into coalition-building by claiming they won’t take part in any coalition that doesn’t also include Syriza. This seems rational; when the tsunami hits, all parties in government will surely take a lot of long-term political damage.
(Mr. Aziz also gives voice to rumors that Syriza leader Alex Tsipras preferred to lose the parliamentary elections, to better to criticize the bailout/austerity plans from arm’s length.)
A ruling coalition, of course, only gets Greece to the point of addressing its larger fiscal problems. As Fitch Ratings noted in a statement today, “The pace of economic contraction is almost certainly accelerating.”
While the risks from Greece have fallen for now, the severity of the systemic crisis engulfing the eurozone is unlikely to diminish until European leaders articulate a credible road-map that would complete monetary union with much greater fiscal and financial integration.
Matters are no more promising elsewhere on the continent. Yields on Spanish government 10-year bonds increased to a record 7.17 percent, while Italian prime minister Mario Monti sought a concrete plan to sure up the region at the G-20 meeting in Mexico City. Stay tuned.