Greek vote lifts Asian markets

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Story highlights

  • Asian markets were lifted in early trade after a victory for Greece's center-right, pro-bailout party
  • Japan's Nikkei was up 2% soon after opening before pulling back to 1.7% mid-morning
  • In the first 90 minutes of trade in Hong Kong, the Hang Seng index was up 1.7%
  • "Yes, we've dodged a bullet in the case of Greece ... but Europe's problems are going to continue"

Asian markets were lifted in early trade after a victory for Greece's center-right, pro-bailout New Democracy party in crucial weekend elections.

Japan's Nikkei was up 2% soon after opening before pulling back to 1.7% mid-morning, while the Kospi in South Korea was 2.1% higher. In the first 90 minutes of trade in Hong Kong, the Hang Seng index was up 1.7%.

But while the vote may briefly buoy markets, analysts said significant challenges lay ahead both for Greece and for other eurozone economies.

"Yes, we've dodged a bullet in the case of Greece and I think you will get very importantly some recalibration of markets today, tomorrow, maybe for several days," said Michael Kurtz, chief Asia equity strategist for Nomura Securities. "But Europe's problems are going to continue to bedevil markets for quite some time.

"It's quite clear that even with a New Democracy government in place, Athens is still going to have a very tough time living up to some pretty tight and strict ... (conditions) placed upon them by their external creditors," Kurtz said.

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While attention is focused on Greece, other trouble spots remain for the eurozone. Spanish banks are seeking $125 billion in aid as Madrid's borrowing costs reached record high levels last week. Meanwhile, borrowing costs for Italy continue to inch higher. Italy and Spain are the third and fourth largest economies, respectively, in the 17 nations united under the euro currency.

"What the Greek election does is largely removes from consideration the likelihood of some near-term disorderly Greek exit from the eurozone area," Kurtz said. "Even that by itself would not have been such a disaster were it not for the case that a Greek exit then creates a potential precedent for a larger and more substantial European economy to leave the eurozone as well."

    "It's going to be a very short stop-gap," said Andrew Sullivan, analyst at Piper Jaffray. "The markets are likely to have a slight rally but on small volume because investors aren't convinced we're out of the woods yet."

    Sunday's vote was seen as a referendum on the survival of the continent's common currency. A UBS survey of central bankers found that nearly three quarters believed at least one eurozone country will leave the currency in the next five years.

    Morgan Stanley Smith Barney predicts a 35% chance one country will break away from the EU at some point, compared to a 40% probability it will remain in tact, said Ron Hart, managing director of wealth management.

    "You're trying to do something that's never been done before," Hart said. "You have a currency with no country ... never in the course of economics in the history of mankind has ... this ever (been) done before, in that you have one currency for 17 countries."

    European Union leaders hailed the vote, with eurozone finance ministers praising results "which should allow for the formation of a government that will carry the support of the electorate to bring Greece back on a path of sustainable growth."

    And in a joint statement, European Commission President Jose Manuel Barroso and European Council President Herman van Rompuy said that they "support the continued efforts of Greece to put its economy on a sustainable path."

        Greece Election

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        Questions are being raised in Greece around which party -- or parties -- will emerge as the country's dominant center-left force.
      • U.S. President Barack Obama talks with German Chancellor Angela Merkel as they walk through woodland at Camp David, Maryland, during the G8 Summit on May 19, 2012.

        Since Germany's emergence as an industrial economy, it has been too big to be one of many and too small to dominate, says Thomas Kleine-Brockhoff.
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        Now that the Greek people have voted and a government formed, we need to think about where this crisis will go, says CNN's Richard Quest.
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        Imagine abandoning your own children because you can't afford to feed and clothe them. It's a nightmare becoming reality in Greece.
      • The family of a woman killed in protests describe how her death sums up the country's plight as it prepared for the first election since the crisis.
      • Health workers shout slogans during a demonstration against the government's austerity measures in central Athens on February 23, 2012 as Greek parliament met to approve laws needed for a historic debt write down with private creditors, a key condition for a new eurozone bailout designed to avoid default.

        Greece has introduced harsh austerity measures to access funding from its international creditors. But can it save the country from bankruptcy?
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        Just one decade after the European single currency was launched amid fanfare and fireworks, its future is very much in doubt.