Where next for Greece & Europe?

Yesterday was the latest general election in Greece and today sees the leader of the New Democracy party attempt to form a coalition government.

Never has Greek politics drawn such a wide audience from across Europe and the world.

Whilst European stock markets opened on a relatively positive note this morning, on the news that a pro-bailout party had gained the biggest share of the votes in Greece yesterday, it has been a mixed day for investors.

Elsewhere in Europe, yields on Spanish government bonds remain elevated above the unsustainable level of 7%, a reminder that Greece is not the only problem.

Assuming the New Democracy party can form a working coalition in Greece, it is likely they are going to want a different austerity package to the one previously agreed to secure bailout funds. The harshness and pace of ‘fiscal adjustment’ will need to be eased in order to keep any new government happy.

At the same time, a sizable portion of the Greek population effectively voted against austerity. Gaining public support for any new measures will be challenging at best.

The next big step in the eurozone is a meeting between the leaders of Germany, France, Italy and Spain on Friday, to decide on a ‘credible package of growth measures’ for their respective economies. Without a credible plan for growth, it is hard to see how Europe might escape from its debt quagmire (and how politicians might stay in power after promising growth measures).

Whether Germany can stand firm with proposed austerity measures in light of calls for slower moves from Greece and pro-growth policies elsewhere will be interesting.

We suspect that a breaking point where Germany says no more bailouts is getting closer. When or if that time comes, the future of the eurozone would look even more bleak.

Photo credit: Flickr/slolee