Investors across Europe, plus Greek banks and savers, look no nearer to resolving the question of Athens' place in the eurozone
It's not the Greek election result investors feared most – but it's not far off. Greek society is deeply divided and there is no certainty that a new coalition government led by the conservative New Democracy party would be able to survive for long. The likely victory of a pro-bailout party, rather than the radical left grouping Syriza, may be enough to settle nerves in markets briefly. But much will depend on the strength of the government that is now formed.
Will Greece have a government by the end of this week? That's the first hurdle to be cleared. The largest party, armed with an extra 50 seats in parliament, gets first shot and the potential kingmaker is the socialist Pasok party. But Pasok appears to have seen its share of the vote fall from 13.2% in May to about 12% today. Even added to New Democracy's expected 30%, that would give a two-party coalition a total share of the popular vote of little more than 40%. That's a weak base from which to attempt to push through radical cuts in government spending.
A further member of the coalition might be required to strengthen the moral authority to govern. Enter the Democratic Left – but its 6% or so support was only roughly in line with that of the extreme-right Golden Dawn party. Whatever happens, Syriza and Alexis Tsipras, its leader, will retain a strong voice in Greek politics.
This position does not sound like a formula for a government that could convince the rest of the eurozone that the bailout terms could be met. The scope for Berlin or Brussels to give a New Democracy-led coalition a helping hand also looks extremely limited. Analysts expect that the timeframe for government spending cuts could be extended – after all, nobody believes the current targets can be met in the face of a deteriorating economy – but it would require an almighty U-turn to sanction a permanently softer approach on pension reforms, privatisation and the eventual size of the cuts in spending. On the other hand, eurozone leaders will be desperate to avoid any impression that they are engineering events to force a Greek exit.
Amid the uncertainty, attention will turn in the next few days to the behaviour of Greek savers, especially if coalition talks are lengthy and there is a risk of Greece slipping towards fresh elections. Royal Bank of Scotland, in a pre-election "what if?" analysis, predicted the first effect of new polls would be the loss of further deposits by Greek banks, estimated to be running at €500m (£400m) to €1bn a day last week.
If this so-called "bank jog" turns into a full-blown run, the banks would have to turn for further support from the European Central Bank, which is already keeping the Greek banking system alive. The chief problem is that Greek banks are already low on collateral and the ECB, under its rules, is not allowed to fund banks deemed to be insolvent. "Greek banks have enough liquidity to survive in a stable environment," said RBS. "But if deposit flight accelerates to the rate of over €1bn per day and without external help, they may run out of collateral in 73 days."
That underlines the need to get a government in place quickly. But, even assuming that can be done, a further crunch awaits when its leaders meet the troika – the International Monetary Fund, EU and ECB – to discuss the austerity terms. All the while, the state of the Greek economy deteriorates.
Greece's place in the eurozone was not settled definitively today . By the end of the week, investors could be back to fretting about that basic issue.
