A slim victory for pro-Europe parties Sunday in an election in Greece should relax fears that a country will leave the euro for the first time and unleash global financial turmoil.
But when it comes to Greek politics — and European economic policy — it's never that easy. So the bumpy ride for financial markets isn't over yet.
The conservative New Democracy party, which supports a bailout agreement that would keep Greece in the 17-country euro club, appeared to win enough votes to form a ruling coalition with another pro-bailout party.
The result forestalled what financial analysts had most feared — a victory for Syriza, a leftist party that wanted to cancel the terms of the bailout, speeding Greece toward an exit from the euro and the world economy toward an unpredictable shock.
But those same analysts cautioned that any surge is likely to be brief.
Neil MacKinnon, global macro strategist at the investment bank VTB Capital, told his clients that the election result, combined with a Federal Reserve meeting this week at which investors hope for measures to stimulate the U.S. economy, could lift stocks.
MacKinnon cautioned, however, that there are still too many problems in Europe, particularly in Spain, plus evidence that the global economy is cooling, to justify a celebration.
"I think investors should treat any sort of knee-jerk rally with caution," MacKinnon said in an interview.
Investors learned that lesson last week. On June 9, European countries agreed to lend Spain up to $125 billion to save its banks, but the relief lasted only hours, and the Dow Jones industrial average closed down 142 points the next trading day.
Borrowing costs for the Spanish government crept closer to 7 percent, the level economists consider unsustainable, throughout the week. They also inched higher for Italy. Those two countries are the third- and fourth-largest in the euro group.
So when stock and bond markets open around the world on Monday, a Greek doomsday will have been avoided, but there will still be plenty for investors to fret about.
"How long is it going to take for people to worry about Spain again?" wondered Peter Schiff of the brokerage Euro Pacific Capital.
For that matter, the problems of Greece itself are far from solved.
The rest of Europe will "lean over backward" to support a coalition led by New Democracy, said Douglas Elliott, a fellow in economic students at the Brookings Institution.
Greeks overwhelmingly want to stay in the euro and avoid a return to Greece's old currency, the drachma, which would almost certainly sink in value immediately against the euro, eating into the value of savings in Greek banks.
But Greeks remain outraged by the public spending cuts demanded by European neighbors, notably Germany, in exchange for a total of $300 billion in bailout loans. Greek unemployment is almost 22 percent.
Syriza, the anti-bailout party, signaled on Sunday that it wants no part of a coalition government. And while New Democracy and Pasok, another pro-bailout party, have enough seats to form one, it could disintegrate quickly.
Greek politics has become extreme and fractious, MacKinnon said, and it is not clear whether a new administration in Greece could implement the wishes of its lenders, the European Union and the International Monetary Fund.
"Basically, all this does is keep the patient on life support, but doesn't resolve the basic problem," he said. "So whatever the reaction in the stock market in the next couple of days, I would say treat with caution."
One market strategist, Paul Christopher of Wells Fargo Advisors, said last week that a Syriza victory could have led to a 15 percent decline in the Standard & Poor's 500 index within weeks.
That is because no one is sure how bad a Greek exit from the euro would be. Greece would almost certainly default on its debt, triggering losses for European banks that own its government bonds.
The worst case envisions a worldwide lending freeze similar to what happened when the investment bank Lehman Brothers went under in September 2008, during the U.S. financial crisis.
That threat has been dodged at least for now. But another investment bank, RBC Capital Markets, warned its clients on Sunday afternoon that Europe still lacks a "grand solution" for its debt crisis, and that "domestic fixes will always disappoint."
The next two weeks could prove critical if any grand solution is to be achieved. The leaders of the world's 20 largest economies gather Monday in Los Cabos, Mexico, for a summit, with Europe sure to be a major point of discussion.
And on June 28 and 29, leaders of the 27 member states of the European Union will hold perhaps the most important meeting since the body was created two decades ago.
"This crisis is not over," said John Silvia, chief economist at Wells Fargo. "The crisis will wax and wane for years. Maybe it will wane for the time being."
Even if Europe finds an answer, investors have to contend with other big problems in the world economy. Job growth in the United States is slowing, and China's white-hot economic growth is cooling.
Central banks of countries around the world have signaled they are ready to step in if the international financial system comes under severe stress or if the world economy gets much worse.
That prospect was enough to trigger a 270-point rally in the Dow on Thursday and Friday. But the sentiment of stock analysts heading coming out of the weekend was still decidedly negative.
"I think investors can only end up being disappointed," MacKinnon said.
Joshua Freed reported from Minneapolis. AP Business Writer Christina Rexrode contributed to this report.
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