The center-right New Democracy party has won the Greek elections, squeezing by the radical left Syriza party. Investors will cheer this result — for now. If Syriza had won Greece would probably have pulled out of the Euro, unless the Euro pulled out of Greece first. In that event Greece would have needed to begin printing Dracmas which would have been pegged at one to one with the Euro but would probably have adjusted quickly to one-half that value or less. Debtors trying to repay Euro debt with less worthy Dracmas would have suffered huge loses. European markets would have fluttered, with the possibility of it spreading to the U.S.
So, take heart, investors. The various, and rampant, doomsday scenarios laid out before you during the past few weeks appear to have been averted. Look for an immediate rally for equities, beginning when Asian markets open tonight, and continuing through the start of trading in Europe and the U.S.
UPDATE: Forbes’ predicted market rally did occur, but appears to have already faded.
New Democracy and the socialist Pasok will now form a coalition government with Pasok at 33 seats, New Democracy with 129 seats, and Syriza with 71 seats. Pasok and New Democracy will rule with a 162 seat majority.
Once again radical leftists try to bring down a country and fail, narrowly. Austerity measures in Greece will proceed, and if providence smiles Greeks may eventually see better times.
But see Walter Russell Mead, The Greek Election Solves — Nothing:
There are three reasons why the Greek election doesn’t help. First, Greece’s economic problems were overwhelming and insoluble before the election, and they are overwhelming and insoluble now. The bailouts have been large enough to antagonize opinion across Europe, where Greeks are seen as shiftless, incompetent liars — but they are neither big enough nor well enough designed to give Greece a reasonable chance of emerging from its vale of tears in a sustainable time frame. Nothing in yesterday’s vote changes that. Greece is still headed over the cliff.
Go to the link above for the other two reasons why Mead thinks this election solves nothing.