Euro zone paymaster Germany, relieved at a narrow election victory for Greece’s pro-bailout parties, signalled on Monday it may be willing to grant Athens more time to meet its fiscal targets to avert a catastrophic euro exit.
But financial markets’ relief that the 17-nation European currency area had avoided plunging deeper into crisis was mitigated by concern about unresolved problems in Greece, the lack of a comprehensive plan for the euro zone as a whole and weakness in the world economy.
German foreign minister Guido Westerwelle said the substance of Greece’s austerity and economic reform programme, agreed in exchange for a second EU/IMF rescue, was non-negotiable, but the timing could be adjusted. Government officials said his comments did not reflect Berlin’s official position, and a government spokesman said now was not the time to give Greece “a discount”.
Austrian Chancellor Werner Faymann said, “The conditions that were negotiated have to be observed but we also need to give the Greeks room to breathe.” The hints at leniency should help Greek conservative leader Antonis Samaras, whose New Democracy party narrowly outpolled the radical leftist anti-austerity SYRIZA movement in Sunday’s election, to form a mainstream coalition with the centre-left Pasok Socialists.
He will face fierce pressure from European and International Monetary Fund lenders to start implementing seriously an economic reform programme agreed earlier this year, which has largely remained a dead letter so far.
Spanish Prime Minister Mariano Rajoy called the outcome “good news for Greece, very good news for the European Union, for the euro and also for Spain”. Analysts at Citi said the election had changed nothing fundamental and they still forecast a 50 to 75% likelihood of Greece leaving the euro within 12 to 18 months.
Others said that regardless of whether Greece stays or goes, the key issues driving markets are whether the world’s central banks will do more to revive global growth, and whether euro zone leaders can sketch out a roadmap for closer fiscal and banking union at a summit next week to convince investors that the euro will survive.