Greek pro-bailout party election win makes good news but uncertainty remains

Greece's pro-Euro parties eked out a slim majority Sunday. The election win calmed immediate fears about a Greek EU exit that could have resulted in an economic contagion spreading throughout the global economy.

With 95 per cent of the votes counted in the Greek parliamentary elections, the New Democracy party has the lead with 29.7 per cent of the vote, the anti-austerity radical left Syriza party has 26.8 per cent and the socialist Pasok stands at 12.3 per cent.

In terms of seats for the top three parties, that equates to 129 seats for New Democracy, 71 for Syriza and 33 from Pasok. Greece has 300 seats in its parliament.

Since no clear winner has emerged, the parties will partake in several days of horse-trading talks in an attempt to form a coalition government. The party with the most votes will be given the first crack at the job. If that party fails, the president of the Greek republic will give the second party a chance to form a government and so on. The process could last a week and could, as it did in May, still fail.

If New Democracy and Pasok join forces in a pro-bailout, pro-Euro coalition, they'd have enough seats for slim majority.

According to Reuters, unnamed Pasok officials said they will support a new government backing the country's international bailout but they are yet to decide how to do that. As some analysts suggest, however, forming and maintaining a coalition might be a difficult task.

The Daily Telegraph's Daniel Hannan says Pasok has more in common with Syriza than it does with New Democracy.

"There had been some hope in Europe's palaces and chancelleries that the two old parties, PASOK (corporatist Left) and New Democracy (corporatist Right), might form a pro-bailout coalition, but PASOK now says it won't join any coalition without Syriza (populist Left), which in turn says it won't join any government that accepts the EU's cuts package," he wrote.

"If no coalition is possible, what next?"

The Slate's Matthew Yglesias writes that "any New Democracy-led coalition is likely to collapse sooner tather than later, and Syriza will be well-positioned to try to pick up the pieces."

A government led by the anti-austerity Syriza party will almost certainly guarantee that the EU and the International Monetary Fund would withhold bailout funds, making the country insolvent and creating massive shocks in the European economy.

It's a scenario that has the international community — including Canada — worried.

Last week, the Bank of Canada governor Mark Carney warned that growing concern over European debt could severely crimp financial conditions around the world and hit Canada with a "major shock."

While Canadian banks have limited exposure to the European countries most affected by the crisis — such as Greece, Spain and Italy — any spillover from an unbridled European financial crisis to the U.S banking sector will invariably affect ours.

In that scenario, already debt-burdened households could begin defaulting on their mortgages, banks would start tightening their lending, jobs would be lost and the hot housing market would go into the deep freeze, as fewer people are able to buy in.

On Monday, Carney will join Prime Minister Stephen Harper and Finance Minister Jim Flaherty for the G20 summit in Mexico, where the three are expected to face mounting pressure to do more to help the European economies.

Flaherty has insisted that European countries shouldn't "pass the plate" and, last week, refused Canada's participation in a $430 billion US International Monetary Fund 'financial firewall' to rescue EU members.

Depending on what happens in Greece over the coming weeks, however, Canada may have little choice but to contribute.