Greeks voted in their millions over the weekend to decide the future of their country. Polls initially showed that the result would be too close to call but it was Antonis Samaras and the pro-bailout New Democracy party that won the most votes.
Mr Samaras said that the Greek people had voted to stay in the Eurozone.
“There is no time to waste,” he said. “A national salvation government must bring economic growth and reassure Greeks the worst is over.”
He added: “There will be no more adventures. Greece’s place in Europe will not be put in doubt,” promising that Athens would “honour its obligations”.
With 99.9% of ballots counted, the Greek interior ministry results put New Democracy on 29.7% of the vote (129 seats), Syriza on 26.9% (71) and the socialist Pasok on 12.3% (33). There are 300 seats in parliament.
As news of the result filtered out across the globe, markets rose, and rallied following weeks of losses and uncertainty. The currency markets showed that the Euro made gains against all of its peers, rising to a month high. The euro reached $1.2748, the most since May 22, before trading at $1.2710. It sank to $1.2288 on June 1, the weakest level since July 2010. The euro jumped 1.2 percent to 100.65 yen and gained 0.6 percent to 80.90 U.K. pence after touching 79.68, the weakest since May 16.
Economists and investors however believe that any gains could be short-lived as doubts still remain over the country’s future.
“The election results appear close to what the markets had been expecting,” said analysts at Barclays Capital. “The fact that the centre-right New Democracy has won the most votes will be viewed as market friendly because it reduces the likelihood of a near-term Greek exit from the euro area, and will be viewed as making successful negotiations with the troika somewhat more likely. Already on Sunday night euro area officials and the IMF had expressed their willingness to look at adjusting some elements of the programme, in particular its timing. Overall, however, we expect the effect on the euro and risky currencies and assets to be muted.”
A group of Eurozone ministers said it looked forward to the swift formation of a new government and reiterated its commitment “to assist Greece in its adjustment effort in order to address the many challenges the economy is facing.”
It acknowledged the “considerable efforts” made by the Greek citizens and said “we remained convinced that continued fiscal and structural reforms are Greece’s best guarantee to overcome the current economic and social challenges. The Euro group expects the Troika institutions to return to Athens as soon as a new government is in place to exchange views with the new government on the way forward and prepare the first review under the second adjustment programme.”
John Cameron from TorFX believes the markets will remain muted; “The weekend’s events in Greece are likely to spell one thing for the GBP EUR exchange rate – further downside. The pair has been showing signs that it is trending downwards following its break to a multi-year high of 1.2578 in the middle part of last month, with subsequent highs getting lower and lows getting lower as well, lookout for further movement lower during today’s session, particularly if Samaras succeeds in his stated aim of rapidly forming a new ruling coalition.”
While the result takes some pressure off of the single currency it won’t be long before the continuing worries emanating out of Spain and Italy begin to slow the markets as investors realise that Europe’s problems are far from over.
“European leaders are expected to come under increasing pressure to deal more decisively with the financial crisis as many nations outside Europe like China and the US are being negatively impacted ever more by the ongoing turmoil in financial markets,” said Mark Huber at ETX Capital.
New Democracy may have won the most votes but Samaras still has the difficult task of forming a coalition government which is far from being an easy task. The previous election failed after no coalition could be formed. SYRIZA has already said it would not join a pro-bailout government citing that it would become a strong opposition to fight any further austerity measures. Once/if this is achieved we can expect markets to improve as confidence grows, if no government can be formed then expect a lot more uncertainty. New Democracy’s best chance to form a coalition is with the Pasok party which also believes in a pro-Euro stance.
The Pound to Euro exchange rate is currently trading at 1.239
The Pound to US Dollar exchange rate is currently trading at 1.565
The Euro to Australian Dollar exchange rate is currently trading at 1.253
The Euro to US Dollar exchange rate is currently trading at 1.263
The Euro to Pound exchange rate is currently trading at 0.806
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