From Goldman Sachs:
In Greece, today’s elections produced a result which reduces near term risks for the country and raises the odds for the formation of a government. The avoidance of a destabilizing tail event in Greece should offer relief for markets as argued in a recent Global Markets Daily. This does not mean, however, that the uncertainty surrounding Greece has been resolved. Severe economic tensions combined with fierce parliamentary opposition will likely destabilize the current government in the medium run.
More specifically, the latest official estimates show New Democracy ahead in the ballot with 29.5% share (vs 18.9% in the May election) claiming about 128 seats in the next parliaments. Combined with other parties committed to staying in the Euro (PASOK and Democratic left, for example) they appear to have the capacity to form a government with close to or even more than 160 seats (in a 300-seat parliament).
However, Syriza, also raised their vote-share to 27.1% (from 16.8% in May) with an anti austerity, but crucially, not an anti Euro agenda. As we highlighted recently, Syriza has backtracked from initially radical positions. The result buys time for the newly formed party (formerly a coalition of parties) to build a mainline agenda against the traditional Greek political order. This means that they will likely continue to follow a party line of fierce opposition to the coalition government that may emerge...
In the French parliamentary elections which also took place today, the Socialist Party (PS) of recently-elected President Francois Hollande achieved an absolute majority, and is forecast to get close to 300 seats in the 577 member National Assembly. This will permit President Hollande to govern on the basis of a parliamentary majority that does not rely on hard left support, thereby allowing a more pragmatic policy stance on key issues. Overall, we believe this is also likely to be more market friendly
