After yesterday's Greek election it is clear that most of the country's voters want two things: for Greece to remain in the euro and for it to adopt a reduced pace of austerity. The key question today is whether these competing demands can be reconciled. All of the Greek parties, to varying degrees, are calling for an easing (or abandonment) of the bailout conditions, with both the victorious centre-right New Democracy and the third-placed centre-right PASOK demanding slower cuts, higher unemployment benefits and a reversal of the reduction in the minimum wage. They are also insistent that Greece must remain in the single currency (the exception being the communist KKE, which has called for the restoration of the drachma.)
The likelihood is that the country will now be led by a grand coalition of New Democracy-PASOK. Last night, PASOK insisted that it would not join a coalition without the presence of the left-wing Syriza, which finished second with 27 per cent of the vote, prompting some to raise the spectre of a third election. Syriza, which relishes the prospect of becoming the country's official opposition, has already ruled out joining any coalition. Who will broke the deadlock? Despite its reluctance to join a "bailout coalition" (seen as an act of electoral suicide), PASOK will almost certainly drop its insistence on the participation of Syriza and, at the very least, offer New Democracy "confidence and supply".
The question will then be whether the new government can extract more favourable terms from its EU creditors. There are some signs this morning that it may be able to do so. On the Today programme, German CDU politician Michael Fuchs suggested that Greece could be given more time to repay its debts. But at this stage, minor concessions will do little to alter Greece's fate. Germany must use the window of opportunity provided by the election to finally engage in fiscal stimulus and allow the European Central Bank to act as a lender of last resort. But so long as Merkel, the high priestess of austerity, remains wedded to her current course, the eurozone is destined for stagnation at best and collapse at worse.