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Greece has bought itself and the eurozone a reprieve. But fears of a Greek exit persist

Greece has bought itself and the eurozone a reprieve. But fears of a Greek exit persist

The Greeks appear to have made a fresh promise to meet their European commitments. The narrow victory for the pro-bailout New Democracy party in Sundays elections has brought cheer to the eurozone and markets worldwide. The resurrected hope is noticeable in investor opinion that the worst possible short-term outcome another political paralysis and a Greek exit from the eurozone has been avoided. And yet,Europe will still have cause to hold its breath vis-a-vis Greeces new promises. New Democracys majority is extremely thin. Even if it manages to quickly form a broader coalition,its mandate to implement the reforms that the bailout is conditioned on is weak,and there are fears that the streets may erupt again as soon as it tries to do so.

While a victory for anti-bailout Syriza might have led to an immediate Greek exit,the austerity measures will continue to shrink the Greek economy,decreasing the chances of Greece paying its debts. Caught in this vicious cycle,despite apparently choosing the bailout and reforms,Greece could still be forced to leave the eurozone unless Europe prepares to lend it more. Cynics might say German Chancellor Angela Merkel would have preferred a Syriza win as an excuse to expel Greece,but the fear of a Greek default,leading to its possible exit,persists. Europes initial hubris that managing insolvency in a peripheral economy like Greeces was merely a matter of redistributing costs precluded a timely handling of the mess. The markets that rallied to the Greek results kept in mind the bad news from Spain,whose borrowing costs have soared to a euro-era record,with 10-year bonds yielding 7 per cent.

For now,Greece has bought itself and the eurozone a reprieve to keep alive the hope for consensus. If a possible Greek default could trigger panic,it is anybodys guess what a restructuring in Spain or Italy would mean for global banking. At Los Cabos in Mexico,as G-20 leaders discuss ways to fix the eurozones crisis so as to prevent contagion,India and other developing economies would be watching how the Greek drama unfolds.