By DAVID McHUGH and MENELAOS HADJICOSTIS, Associated Press
ATHENS (AP) — Greece's election result has eased fears of an imminent financial disaster for Europe, but the region's indebted governments remain under heavy pressure. Spain and Italy are fighting to keep their borrowing costs down and European leaders are struggling to find agreement on how best to fix the shared currency's deeper problems.
As cleanup crews swept Athens' central Syntagma Square and took down election posters, Greeks waited anxiously for the formation of a new government, seeing it as the last step to ending at least the acute phase of the current political crisis.
The New Democracy party, which supports keeping Greece's bailout deal with its European government creditors, was moving to form a coalition government Monday morning after securing a narrow victory over anti-austerity Syriza and its old socialist rival PASOK.
"We'll breathe easier when there's a government in place," said George Moutafidis, who runs a sandwich shop in the Syntagma Square.
"Yesterday's result is somewhat positive, but we need a government in place to start making decisions. You need to just do it. That's it."
A New Democracy-led government could lead the way to talks with international creditors on getting it more time to fix its broken finances. European officials are signaling a willingness to talk — and avoid an aid cutoff that could force Greece out of the euro. A euro exit by Greece could have further destabilized the 17-country single currency union and rocked the world economy.
Any hope that news out of Greece might have eased concern over the state of Europe's finances were quickly dashed Monday morning.
"The crisis is far from over," Commerzbank analyst Christoph Weill in a note to investors. "A sovereign default by Greece and the country's exit from the monetary union have probably been avoided for the time being. "
Spain's borrowing costs spiraled higher in a sign markets remained deeply skeptical about Europe's chances to contain and end the crisis. Interest rates, or yields, on 10-year government bonds — a key indicator of how bad the crisis is — spiked to just over 7 percent. That is a new high since Spain joined the euro in 1999 and indicates increasing doubt that the country will be able to manage without a bailout like the ones received by Greece, Ireland and Portugal.
Yet Spain is bigger than the three bailout countries combined, and would stretch the eurozone's €500 billion bailout fund if help were needed. The country has already asked for €100 billion to bailout its banking system, weighed down with heavy losses on bad real estate loans.
Italy has also been caught up in concerns that it might soon be able to keep a lid on its debt without help. Its economy is the third largest in Europe, after Germany and France, but it has a massive amount of debt. The worry is that if Italy's economy continues to slow, it won't be able to maintain its debt. Italian bond yields Monday rose to 6.07 percent.
One reason for the market's wariness over Europe is there is still a lot of work to be done in Greece before it can consider itself out of the immediate danger of full-blown economic collapse and possible exit from the euro.
New Democracy, which still has to reach agreement this week with another party to have enough seats to govern, favors continuing with the €240 billion bailout deal from other eurozone governments and the International Monetary Fund on which the country has survived for more than two years.
Continued bailout money hinges on keeping to an agreement to cut spending and make Greece's bureaucracy-choked economy more business friendly so it can grow out of its troubles in the long term. Yet Greece's plummeting economy is making it harder for it to reduce its budget deficit by the required about. Failure to keep to the bailout deal could result in an aid cutoff, leaving the government unable to repay its remaining debt.