Disaster was avoided in yesterday’s Greek election, as pro-austerity parties New Democracy and Pasok eked out a victory over the radical, anti-austerity Syriza party. But the victory for common sense hasn’t made the dent on U.S. financial markets that some economists were expecting.
In fact, two of the three major U.S. indices were down in late-morning trading. The Dow had fallen 32 points, and the S&P 500 was down just a tick. The Nasdaq had climbed a modest 0.2%.
As we wrote last week, Sunday’s Greek election could have had disastrous consequences for the future of the euro zone and the global market as a whole. Had the Alexis Tsipras-led Syriza party wrested control of Greek parliament, the party was likely to reject the joint European Union-International Monetary Fund bailout package, which includes sweeping austerity measures for the country. Some feared that a Greek rejection of the bailout funds would have led to the country abandoning the euro as all together – which could have prompted other countries to do the same.
Instead, the fiscally conservative New Democracy and Pasok parties narrowly took the election by claiming 159 of the 300 seats in Greece’s parliament – enough for the presumed coalition to form a majority government. Both parties favor the $164 billion EU-IMF bailout and most of the austerity terms that accompany it. That’s important, considering Greece’s banks currently carry a debt that is 113% times the country’s gross domestic product.
Global markets had basically been at a standstill for most of June as they awaited the Greek election results. Greek stocks climbed 6% this morning after the results were in. But U.S. markets haven’t had a similar push yet.
Still, little movement in the market is better than what the alternative could have been if Syriza had won the Greek election.