What does the Greek election mean for the world economy?

The world has been waiting for new elections in Greece for over six weeks and now the wait is finally over.

Over the weekend, the New Democracy party managed to win a majority in parliament over a month after the previous elections left Greece without a government. Since then, the world has been holding its breath to see whether a new administration would either accept or deny the European Union’s demands leading up to a bailout.

It’s certainly a confusing situation. So we thought we’d take some time out to explain everything with a Q&A:

So we’ve been waiting for this election for six weeks now. What’s happened?

As we pointed out last month, solutions for the country’s ongoing debt crisis fall into two groups.

The first group, represented by the conservative New Democracy party, want to implement harsh austerity measures in order to receive bailout funds from the European Union – a bailout worth 130 billion euros.

On the other side, there’s Syriza, which has vigorously campaigned against the austerity measures saying the Greek public shouldn’t have any of their services taken away.

Stop stalling! Who won?

In a result that will appease investors and allow politicians to breathe a sigh of relief, the pro-bailout party New Democracy managed to win with 30% of the vote. Together with the pro-bailout Pasok, New Democracy will be able to hold more than 160 seats in the 300-seat parliament.

With a pro-bailout government in place, Greece will be able to implement its austerity measures, and receive a much-needed bailout from the EU.

And it’s probably going to happen fairly quickly. New Democracy leader Antonis Samaras said yesterday he’ll try to form a government as soon as possible, and even the leader of Syriza, Alexis Tsipras, said New Democracy should be given leave to form a coalition.

That all sounds great. But remind me again why Greece getting a bailout is so important?

Because if it doesn’t get more funds, then the country will default – and that would be bad for everyone.

For one thing, there’ll be a run on banks, and funding will dry up just as it did during the 2008 global financial crisis. That means upward pressure on interest rates, including mortgage rates in Australia. Neighbouring countries already in trouble, such as Italy, will feel the effects as well. Economies in the area will grind to a halt.

Closer to home, the sharemarket will drop, and the Asia-Pacific region will suffer as European demand for exports falls. That means lower demand for Australian resources.

So I guess it’s a good thing the pro-bailout party won, right?

The market seems to think so. The dollar has already risen above parity over the weekend after the results started to come through. And although world markets still have another day to react, the Australian market is up 0.5% upon opening this morning, and the euro soared as well – a good sign the positive news will lead to a worldwide sharemarket boost.

Essentially, the results of this election mean Greece can accept bailout money, which means it won’t go into default and drag down the rest of Europe – and the world – with it.

But, on the other hand…

Oh, great. There’s always a “but”.

Hold on! It’s actually not as bad as you might think – at least for anyone living outside of Greece.

Although this is great news for the rest of the world, the fact is the European Union is demanding some pretty harsh austerity measures. And the Greek public haven’t taken kindly to any suggestion that public funding be cut.

Remember all those riots in the streets? You can probably expect more of that in the coming months.

Well, better them than us, right?

Sure, but an angry public can create massive change. If protests and riots get even worse over the next year, there’s all the chance in the world the Greek government will fall, new elections will be called, and then we’ll back in the same situation again.

The other victims here are Greek businesses. With austerity measures on the way, Greece isn’t a great place to start a company, and that impact could last for years.

That’s horrible, but as far as I see it, what other option do we have?

And that’s the essence of the situation. This is a horrible, no-win scenario – but a pro-bailout party winning the Greek election is probably the best outcome entrepreneurs around the world could have hoped for. Instead of the pain being spread around, it’s contained to one small area.

Greece is in for a tough time but, at least for now, the rest of the world is saved from any potential fallout from a default. As to whether the Greek public accepts the EU’s austerity measures, we’ll just have to wait and see.

This article first appeared on SmartCompany.

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