WASHINGTON – A slim victory for the main conservative party in an election in Greece should relax fears that a country will stop using the euro for the first time and possibly unleash global financial turmoil.
But when it comes to Greek politics – and European economic policy – it’s never that easy. So the bumpy ride for financial markets isn’t over yet.
The conservative New Democracy party, which supports a bailout agreement Greece agreed to earlier this year, appeared to win enough votes Sunday to form a ruling coalition with another pro-bailout party.
The result forestalled what financial analysts had most feared – a victory for Syriza, a leftist party that objects to the bailout terms. That could have sped Greece toward an exit from the euro and the world economy toward an unpredictable shock.
Dow Jones industrial average futures were up 85 points Sunday night, suggesting the market could open higher today.
Neil MacKinnon, global macro strategist at the investment bank VTB Capital, told his clients that the election result, combined with a Federal Reserve meeting this week at which investors hope for measures to stimulate the U.S. economy, could lift stocks.
MacKinnon cautioned, however, that there are still too many problems in Europe, particularly in Spain, plus evidence that the global economy is cooling, to justify a celebration.
“I think investors should treat any sort of knee-jerk rally with caution,” MacKinnon said in an interview.
Investors learned that lesson last week. On June 9, European countries agreed to lend Spain up to $125 billion to save its banks. That was a Saturday. On Monday, the Dow Jones industrial average opened up almost 100 points but closed down 142.
Borrowing costs for the Spanish government crept closer to 7 percent, the level beyond which economists say countries can no longer finance their debt, throughout the week. They also inched higher for Italy. Those countries have the fourth- and third-largest economies among the 17 countries that use the euro.