Stock markets were braced for a turbulent opening today after the knife-edge Greek election.
Although the anti-bailout package Syriza party did not win, economists and investors remained concerned that a New Democracy-led coalition could find it extremely difficult to govern effectively. If that proves to be the case, a Greek exit from the eurozone could be back on the cards again in a few months' time.
Some City figures warned that investors could panic at the closeness of the election finish and start fleeing Spanish and Italian sovereign debt. That in turn would lead to more worries among investors about the contagion effects of the Greek crisis spreading across southern Europe.
Nicholas Spiro, of Spiro Sovereign Strategy, predicted a big market sell-off: "What matters most in this whole affair is the impact on Spain and Italy. If we now get a debilitating run on Spanish and Italian debt there will have to be major, concerted action and intervention by the central banks to support them. And we will need that in the first 24 to 48 hours."
The result underscored the deep political division in Greece over whether to accept eurozone bailout conditions in order to remain in the currency bloc or to simply give up and jettison the euro.
However, some pointed out that it was not the doomsday scenario some had feared, with Syriza apparently failing to win over enough of the electorate to get the upper hand.
That could give some respite to markets and prevent the wave of selling some investors were predicting.
Speaking after the second exit poll, the economist Vicky Pryce said: "I think New Democracy can, with Pasok, form a coalition which can govern – that is good news. Had Syriza had the same marginal gain, it would not have been able to form a government."
However, she stressed that if the markets opened today without a government in place, it would create serious jitters for investors. "The markets will be worried until it becomes clearer, perhaps during the day, how the government will be formed. Even so, there will still be serious concerns."
The Berenberg Bank economist Holger Schmieding said a New Democracy/Pasok coalition would "be a relief" for the markets.
As well as stock and bond markets, currency trading is likely to be extremely tense. The euro has suffered hugely from the uncertainty around Greece and the spreading worry about Spain and Italy.
Much will depend on the new government's makeup and its early comments. Most observers expect that even a New Democracy-led regime will want to begin renegotiating certain bailout terms. Crucial to the bond markets will be the extent to which Europe agrees to allow Greece to backslide on earlier commitments.
Ministers assembling today at the G20 summit are expected to push European leaders for greater fiscal union and more co-ordinated action by the area's banks. Central banks in the US and Japan are believed to be working together on co-ordinated action to fight any new crisis that emerges in Europe.Reuse content