Keeping the powder dry

Greece’s elections produced probably the best outcome that the Troika could have hoped for: a coalition of the old guard as Nea Democratia became the largest party and invited PASOK to join it in what is to all intents and purposes a government of national salvation. Cynics, though, might point out that they are exactly the same people got Greece into the mess in the first place.

However, the ragtag mini-coalition of communists and other assorted lefties that is Syriza has not gone away and their defeat was very close. If the national situation deteriorates, it is very possible that there will be another election this year and it would be surprising if they did not win.

The international reaction to the result was a damp squib news wise. There was not an immediate need for massive coordinated action (though some may doubt whether the international community could have agreed on what to do) and virtually all players are refraining from action in order to see how things develop. The rather tedious cycle of international mini summits (with all the attendant leaks and counter-leaks) has resumed as the PIIGS take advantage of this breathing space to resume their lobbying against German rigidity.

With the formal start of the new European Stability Mechanism (ESM) now only weeks away and if the new regime is tweaked to enable more direct action in bank capital raising, it is possible that this Euro-crisis will go into a quieter phase for a few months as the market comes to terms with how the new revolutionary European financial architecture works in practice.