By Jason Gaywood, director at currency specialist HiFX

Following Sunday's Greek election result the sense of relief is palpable. Politicians globally have lauded the Greek election result as the best way forward for Greece, the EU and the World economy.

Markets too have signalled relief as the pro-austerity right wing New Democracy Party gained enough votes to form a Government. Just. Only time will really tell however if Greece can drag itself out of the mire from here but the odds remain stacked against both Athens and the Eurozone as a whole and sooner or later, the fundamental question has to be asked as to whether we can realistically expect one interest rate and one currency unit to work with economies as divergent as Germany and Greece.

Both politics and financial markets are fickle beasts. The equity rally in the Far East, the positive reaction form the Bond Markets and the strengthening of the Euro itself in the wake of a mere 2% majority of voters who backed Greece to stay in the EU is reminiscent of the reaction to the Spanish bailout only a week ago.

If that scenario plays out here, the positive mood is likely to be reversed as early as tomorrow. Once the reality of the mountain still faced by the New Democracy leader Antonis Samaras, Greece itself and its impoverished neighbours if they are to stay in the EU and indeed whether the Euro is to survive dawns once again on a battle weary global economy, the return of risk aversion is an odds on certainty.

The problems are as widespread as they are complicated. In the first instance, New Democracy still has to form a coalition Government and with such a slender majority in the polls, civil unrest is likely to return to the streets of Athens and elsewhere. Beyond this, delicate negotiations need to take place to improve the terms of the austerity measures imposed by the EU. Failure here would probably mean the fledgling new government would fail in spectacular fashion and we would be back to square one and lets remember the firm demands by Angela Merkel that Greece must fulfil its obligations.

If we consider the wider issues facing the EU away from Greece itself, we are immediately reminded in particular of the extreme woes faced by the much bigger and far more significant economies of Spain and Italy — In Spain, EUR100 billion of aid has failed to improve things with Bond yields topping 7%, unemployment above 8% and a Moody’s downgrade to one notch above ‘junk’ status. The situation in Greece maybe fixed for now, but there are evidently still much bigger problems the Eurozone still has to tackle.

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