Tiny margin saves Greece from leaving euro

It is fortunate that the new general election in Greece has just saved the country from falling out of the eurozone. It would have had very uncertain consequences for Greece, the European Union and the worlds’ financial system. It is a disastrous comment on the fragility of European finances that a two per cent lead between pro-bailout New Democracy’s 29.9 per cent and anti-bailout Syriza’s 26.7 per cent can make such a vast difference to what is supposed to be one of the world’s leading currencies.

Antonis Samaras, the leader of New Democracy, the centre-right winning party, said Greeks had voted to stay in the euro and announced that he would form a “national unity government”. It was a healthy development that Alexis Tsipras, the Syriza leader, was quick to agree that Samaras should have the chance to form a government. Greece needs a government quickly as the country is about to run out of money and coping with the euro crisis needs immediate leadership.

Led by German Chancellor Angela Merkel, the rest of the European Union has already offered Greece several bailouts and imposed tough fiscal conditions on the improvident Greek system. This has been fiercely resented and Samaras will have a very difficult time making his policies work.

It will be important that the European Union moves on from insisting on fiscal responsibility as its single main requirement, but also includes a more reflationary package, as Francois Hollande, the new French President, is seeking. This will give the struggling Samaras an important new argument as he tries to force cuts on the angry Greeks.

Despite the fortunate election result in Greece, it is not yet clear whether the euro can survive with all its current members. A long-term euro needs a much stronger political structure to manage its fiscal affairs across national boundaries in a coordinated fashion. Greece will have the hardest job to meet the new conditions, but other countries like Portugal, Spain, Italy and Ireland may also struggle to meet the future fiscal rectitude required of them.