June 18th, 2012
04:45 PM GMT
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Athens (CNN) - Greece has voted. New Democracy, its pro-bailout party, prevailed in Sunday’s election and still market reaction has been decidedly muted. Much like last week’s market performance following Spain’s aid request, the euphoria fizzled quickly as traders focused instead on the considerable unknowns looming in the distance.

Among the unanswered questions: Will Greece’s New Democracy party be able to form a government? And how much leeway will it have to soften the terms of its Troika-prescribed austerity package?

Writing to clients today, HSBC economists David Bloom and Janet Henry said Greece’s result may offer temporary relief but warned that “major challenges remain.”

“While a coalition of pro-bailout parties would put the idea of a Greek euro exit on the back burner for now, it would not alter the underlying problems in the euro zone itself,” they added.

More worryingly, they went on to say that “a temporary halt to Troika funding cannot be ruled out.”

Stuck in their fifth year of recession, Greek voters went to the polls for the second time in six weeks after a first round in May proved inconclusive.

Antonis Samaras, center-right leader of New Democracy, hailed his party’s near-30% score as “a victory for all of Europe” and promised to honor Greece’s commitments - but begged for breathing space.

Since being granted its first bailout two years ago, austerity has hit Greece hard, and indeed the argument for restraint is gaining pace. During the IMF-backed programme, Greek debt as a percentage of GDP has skyrocketed to 165%, unemployment has doubled and the yields on Greek bonds have soared from high single-digits before the bailout to a whopping 35% after investors were forced to take a haircut.

Which all begs the question: Are such severe cuts killing the patient?

Speaking before the election results, Bob Parker, adviser to Credit Suisse Asset Management, said policymakers should rethink their strategy somewhat. “You have to ask yourself whether there’s a tipping point when austerity becomes not so much the answer but more the problem,” he said “At this point I think you could argue we have reached that point.”

But even if Greece does manage to form a government, that does not detract from the lack of leadership present among Europe’s political chiefs today.

Simon Denham, chief executive of spread betting firm London Capital Group, is among a number of City veterans who are skeptical about whether the Greek vote will ease eurozone jitters.

“Fundamentally there’s a lack of confidence and a belief that neither central bankers nor politicians have a solution,” he said. “It’s like the snake biting its tail. The leaders are fearful of the markets instead of it being the other way around.”

In their weekly note to investors, Mark Wall and Gilles Moec of Deutsche Bank went one step further, likening those with the power to stem Europe’s crisis to two travelers “driving without a map” and lost among a myriad of unfortunate outcomes. “Bold action by the ECB is needed, but this is predicated on a credible road-map by the European Council,” they explained.

Unfortunately, they went on to say, “there is no consensus at this stage on such a road map.”

And fanning the flames for financial markets Monday: the yield on Spain’s 10-year bond rose again above 7%, a level which previously priced other euro zone countries out of the open, capital markets and into the hands of the Troika.

So while leaders rejoice at Greece’s pro-Europe choice, the markets are already focussing on the region’s next potential victim. This time though, there’s even more at stake.



soundoff (27 Responses)
  1. cnnitnews

    Greece is dead. Its obvious. Market plays those money which poor greeks still able to pay. It should be pair of months. Now its probably more then half-year. And then ....game over.

    June 18, 2012 at 6:04 pm |
  2. Alex Povolotski

    And yet again, the interests of a few prevailed over the interests of many... Too bad for Greece.

    The bailout money will be cut between those few having access to the funds and those in need will still be begging...

    June 18, 2012 at 6:05 pm |
  3. Roelof

    Let's write something positive. The total nonindependent rating farmers of S&P told that Greece was not bankrupt with the course they're followed. And Greek votes now guarantee they keep following that course. So nothing to worry people, keep walking. The euro is ALIVE! Greece saved the day.

    June 18, 2012 at 6:14 pm |
  4. Roelof

    Of course I'm drunk.

    June 18, 2012 at 6:17 pm |
  5. costadosol

    Only when we have euro politicians with intelligence we will get out of the euro disaster they created1 how about starting with a little intelligence and develop euro growth by creating one EURO STOCL EXCHANGE ,politicians are quick to grab the things that control and oppress, but never apply the things that develop and grow! instead of giving money to the Mediterranean, GIVE IT IN KIND!! In Stocks, make companies invest in the south, by creating incentivised investment platforms! NO MORE MONEY, ONLY STOCKS! for the bail out...!

    June 18, 2012 at 6:19 pm |
  6. mschipperheyn

    The problem is that Greece has time and again showed itself to be an unreliable partner in debt and a country that has a strong aversion to taxation. In addition, if you read many of the comments on articles such as this, the dominant theme seems to be that Greeks feel the nazi's stole their gold in WW2 and that this is the cause of all their problems. When a country is so deeply in denial and the required measures are so averse to their culture and beliefs. In such a case, you cannot let up, give breathing space. And let's be honest. Greece is not treated any differently than other countries on IMF handouts. But now for the first time, it's a Western country that suffers all the painful consequences. The simple choice is: exit the euro and accept both the chaos and the devaluation opportunities or continue on and suffer a decade of recession. Neither is attractive. That is sure.

    June 18, 2012 at 7:09 pm |
  7. LiberalNN

    Dear Greece,

    Forget your troubles and hop on a plane to the land of opportunity, the USA! You'll get free health care, food stamps and you won't need to worry about being deported because we don't enforce immigration laws any more! Stay as long as you like but don't forget to vote Democrat in November!

    Sincerely,
    the Obama Administration

    June 18, 2012 at 8:48 pm |
  8. Carm

    The calm before the storm....

    June 18, 2012 at 8:53 pm |
  9. Niko - Athens, Greece

    > The bailout money will be cut between those few having access to the funds and those in need will still be begging...
    as mater of fact MOST of the money are going to re-finance previous loans. The memorandum signed says in two words: we give you money to keep paying your loans (to our banks) and you make sure you make it on your own for the rest (including interests). That sounds fair enough and this is the reason why the deficit has dropped by 6% in two years (!) on the track of going from 15% to less than 3%

    On the other hand, since the only tool to get hot money for current needs is taxing (yes, more and more taxes are imposed and collected), the economy is declining always faster then projected by the IMF, private companies are going bankrupted on a daily basis mainly because they are not paid for state contracts (money are used for salaries and pensions) and secondly because banks have practically quit giving loans, unemployment is sky rocketing (23,2% in May 2012 compared to 6,6% in May 2008) and the whole situation seems like a trap without an exit path.

    What most people believe here in Greece, is that the country will exit this trap and let to default officially when its default will not form a threat for the stability of the rest of Europe.

    >the dominant theme seems to be that Greeks feel the nazi's stole their gold in WW2
    >and that this is the cause of all their problems
    the facts that
    a) Greece was forced to offer a loan to the Nazis which has never been paid back
    b) Greece is the only country who hasn't received war compensation from Germany
    c) Germany refuses to compensate for ww2, stating that the German state is not the descendant of the ww2 German state (!)
    are definitely NOT the reasons for our problems which WE created, but still are facts

    June 18, 2012 at 9:13 pm |
  10. Woods

    If CNN says Europe as in "Europe is the largest market for India" does it actually mean Europe or just the European Union?
    The largest country in Europe is Russia, the largest European city is Moscow and the language with the highest number of native speakes in Europe is Russian. And the geographical centre of Europe is... in the area where Chernobyl is located.

    June 18, 2012 at 9:16 pm |
  11. Woods

    @ Niko in Athens, Greece: "Greece is the only country who hasn't received war compensation from Germany." On what is that statement based? Please name your source.
    I am from Amsterdam and the Germans trully plundered the place. During the winter 1944/45 an estimated 50,000 people either died of starvation or froze stiff. Can you tell me how much Germany paid for that? There are no Dutch records on having received anything.

    June 18, 2012 at 9:21 pm |
  12. Johnson

    The only solution to the Greek problem is to kick it out of the EU and take the consequences. Greece doesn't belong in Europe anyway. Let them find out how tough it is to pay taxes and earn benefits instead of taking them from other countries with higher values.

    June 18, 2012 at 9:33 pm |
  13. mschipperheyn

    @Niko I think if Greece starts to own up publicly, as you do, to the fact that the Greeks need to clean up their own mess, it would be a huge step forward. Greece should and can expect help from Europe, and perhaps a little bit more than cut, cut, cut, but if the first thing that the newly elected ND does, is ask for leniency, it's a bad sign. Even though it's devastatingly painful to have to clean up decades of mismanagement in a few years, the "good thing" is that only in a crisis can you get the mandate to do so. If nothing else, Greece will come out of this message a much better country. Unfortunately for the Greeks, this process will be painful and will take a decade or so. So, if I were a Greek I would probably make generous use of the Freedom of movement that the European Union offers you. In other words, talented people will leave. I guess it will be like this for a while. Bad news, and then more bad news.

    June 18, 2012 at 9:35 pm |
  14. josh

    People need to wake up – no governement can save them. Governments together with bankers only restrict, repress and prevent real economic growth, replacing it with fake numbers (GDP's, etc) that do not reflect real state of things just to keep TV – watching imbiciles on voting for them. We need to shed somehow the socializm and nanny-state goverments and replace it with real-market capitalism in Europe!
    Peaceful civilian disobedience to sabotage execution of socialist laws is the only way to get ti done. Current 'globalist' government will never willingly allow changes to happen.

    June 18, 2012 at 9:56 pm |
  15. Intrepid

    It is not over yet.

    June 18, 2012 at 10:31 pm |
  16. Paulie

    The Euro not losing value means the U.S. dollar is worth less and the Euro is worth more. If this is the trend and the Euro stabilizes it doesnt really help the USA all that much or does it?

    June 18, 2012 at 10:33 pm |
  17. Roelof

    Greece shouldn't be kitties and tell the EU that they are willing to sacrifice their autonomy (600 billion euro on Swiss bank accounts). After that leave the euro zone, because it was their decision to join. Now it's other countries that pay for their membership. That's ridiculous.

    June 18, 2012 at 11:38 pm |
  18. MuppetAntwerp

    The Berlin wall fell. Yes, but in which direction ? Socialists take over in most European countries to grap what is left. A communism de luxe: hollidays and WE-trips, free health care, pensions to lay back at 55/60, 'kids' to university with clean hands for the future, taxing to who saved and invested something .. Rome has known that a long time ago. Politicians, top-finance and trade unions go for the same goal: takiing in the short term.
    For the young people: think, think ! Somebody is terribly lyiing to you.

    June 19, 2012 at 12:32 am |
  19. Vassilis

    Greece has many issues and this is not a solution to the current prob but the truth of the matter is that the reparation issue is not really settled fully and there are at least three fronts. Greece had the highest proportion of casualties than any other nation. 1 million only from famine (peanuts have been paid for this), numerous war crimes (only in my village they burned 10s of members of my family using the family oven) (not only nothing was paid for this but the culprits have not been punished), got a very big loan from Bank of Greece that never paid back. This last item is not covered by any agreement for reparations and still appears as a loan and the Germans refuse to pay back. Germans have behaved to Greeks in the most horrible way during the war and without respect after the war. They should say sorry to the Greek people for all past deeds and at least say a very big thank you for the loan and for the generosity of the Greek people. They should also accept that after 5 years of extreme austerity Greece is ruined, it is as if out of war and they should be at least as generous as Greeks who at least they did not commit such crimes. In fact Greece owes nothing to Germany.

    June 19, 2012 at 1:27 am |
  20. KBR

    The markets are not sure because the Greek electorate is not sure. When there is a government in Greece there will be more reason for assurance.

    June 19, 2012 at 1:38 am |
  21. YS

    I'm Greek, but I think we need to stop talking about unpaid loans to the Germans, WW2 and whatnot. All these are diversions from the real thing. Excessive public spending, syndicates out of control, sold politicians, unrealistically generous pensions, beaurocracy on an unimaginable level, a public that thinks someone everything should be free, or someone else should be paying for everything, tax evasion that's a national sport, destroyed universities and on and on. We need to stop lying to ourselves. We have very, very serious problems. We won't solve them if we keep denying our responsibilities for our present nighmare.
    When, and if we ever, put our house in order, then lets waste our energy in asking for reparations from the Germans. Until then we should be busy rebuilding our country.

    June 19, 2012 at 1:59 am |
  22. reef133

    Testing the moderator...

    June 19, 2012 at 2:56 am |
  23. truthhurtsss

    With all these deep indebtedness in the countries, you expect the problems to go away just with a reshuffling of some political deck chairs?

    That is the problem with most people nowadays. Not many are thinking for themselves. They are in denial, being conditioned to think that the "government" has a magic wand that can solve the problems.

    The problems will NOT be solved until and unless the debts are repudiated, forgiven or inflated away. This is so logical and simple a conclusion that many in this world simply cannot see it.

    June 19, 2012 at 3:46 am |
  24. Vassilis

    YS, I don't claim that reparations are solving any of our current problems and you are right to point them out but reparations and the way Germany treated and treating Greece (without respect to say the least, extreme austerity not with the aim to help but with aim to punish, direct involvement in the political process as if we are in occupation again) is a valid issue because you know we shouldn't hide skeletons in the closet. They will come out to haunt us. These are valid issues as well.

    June 19, 2012 at 11:48 am |
  25. jerryberry

    It is a real shame that coverage of Geece comes first and the massacre of children comes in second in your headlines. What could be more serious than the brutal assassination of children, torn from their parents arms and killed? Where are the military now? Bunch of cowards!!

    June 19, 2012 at 11:52 am |
  26. Niko Athens Greece

    My comment is awaiting moderation for almost fifteen hours. I hope it will finally find its way. Awaiting ...

    June 19, 2012 at 1:01 pm |

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