Pro Bailout Greek Party Wins – Were The Elections Overhyped?
The New Democracy party was able to pullout a narrow victory to beat the leftist SYRIZA party in the highly anticipated Greek elections held today. The New Democracy Party is considered the better alternative because they are euro currency friendly and advocate staying in the EU.
The win eases fears that Greece would be leaving the euro currency abruptly even though most citizens reject the harsh austerity measures that have caused some to protest in the streets.
Greek banks have seen significant outflows in the last few weeks and concerns about what would happen if Greece left the euro zone caused central banks to get ahead of the elections last week promising liquidity.
The Greek elections were largely overhyped because the euro debt crisis is by no means – over. Greece will still have issues that make staying in the euro problematic and the short term worry that other nations might follow their lead has been alleviated although it may just be the first inning of the problem that seems to not want to go away. The euro zone has serious political economy problems that are inherent in a common currency without a central bank or promise to guarantee bank deposits regionally. Spending and fiscal budgetary issues pose systemic risks to the region along with contagion effects from sharing one currency.
Watch We Are Watching
We are watching the euro versus the dollar to help determine market direction. The euro rose then fell against the dollar after the elections and we expect to see the some short term stability in the euro. Tech, financials and small cap strength would indicate a continued rally although there could be a slight downtrend after U.S. equities ran up last week in anticipation of a Greek debacle. We expect the euro crisis to look beyond Greece in the near term.