World stock markets move higher on relief that pro-bailout parties in Greece had secured a narrow victory
World stock markets were propelled higher on Monday morning on relief that pro-bailout parties in Greece had secured a narrow victory in the election re-run over the weekend.
But there was concern that the rally would prove shortlived, amid continued fears that debt-laden Greece will ultimately be forced out of the eurozone.
"The challenges facing the Greek economy remain mountainous and the general feeling remains predominantly that the day of reckoning has merely been delayed," said Michael Hewson, senior market analyst at CMC Markets UK.
"The outcome of the Greece election could prove to be one of those results that could end up being potentially toxic to the winner, given that the next government could well preside over Greece's eventual exit from the euro."
The euro hit a one-month high against the dollar, rising to $1.2748, and European stock markets all moved higher. The FTSE 100 index in London leapt nearly 75 points to 5551, a 1.3% gain, with mining and banking shares the biggest gainers. Spain's Ibex jumped 1.7% and Italy's FTSE MiB rose 1%, while Germany's Dax climbed 1.3% and France's CAC was 1.1% ahead.
In Asia, Japan's Nikkei closed 1.8% higher while Hong Kong's Hang Seng and Singapore's Straits Times both added about 1%. The leaders of Spain and Italy welcomed the election result.
Arriving for the G20 summit in Mexico, Italian prime minister Mario Monti said: "This allows us to have a more serene vision for the future of the European Union and for the eurozone," he told reporters.
"We hope that a strong government can be formed which confirms the commitments made with the EU."
Spanish prime minister Mariano Rajoy hailed the result as "good news for Greece, very good news for the European Union, for the euro and also for Spain".
"The [Greek 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 have 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."
On bond markets, Italian 10-year government bond yields have fallen back below 6%, trading at 5.9% this morning. The Spanish equivalent, which entered danger territory above 7% last week, also dropped, falling 4 basis points to 6.88%.
On Sunday night the Eurogroup of finance 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" already made by the Greek citizens and said it remained convinced that continued fiscal and structural reforms are Greece's best guarantee to overcome the current economic and social challenges.
"The Eurogroup 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.
European leaders had postponed their departure for a two-day G20 summit in Mexico in order to be able to digest the outcome of the ballot in Greece, which posed the most severe challenge to the EU and the euro.
The fallout from the Greek election and the broader issue of how to avert a renewed European banking crisis and stabilise the currency will dominate the Mexico negotiations, with the US and the UK pressing the leaders of Germany, France, Italy and Spain to ward off the risk of collapse by coming up with persuasive action by the end of the month.
The G20 talks will be promptly followed by a flurry of EU summitry climaxing in a European Council of heads of government in Brussels at the end of next week.
"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.
