Yesterday Greece held a parliamentary election.  Its result was that the sitting government was replaced by a coalition whose main platform is renegotiation of the terms of that country’s bailout agreement with its EU creditors.

The Greek argument for further restructuring is that the country has suffered enough by not having grown for a half-decade, that it has made significant structural reforms and that, at 175% of GDP, its euro-denominated sovereign debt is impossible to repay no matter what Greece does.

The other side is, more or less, that Greece deliberately deceived lenders for years by issuing falsified national accounts, so it doesn’t deserve better treatment.  (There’s a fuller discussion in my posts  about Greece from 2010.)

When I saw the election news last night, the euro had declined by about a percent from Friday’s close and S&P 500 futures were down by about 12 points.  As I’m writing this, the euro is up by more than a percent against the USD, stocks indices across Europe are rising and the S&P is down by about half what the futures in Asia were showing.

How so?

I think the markets are coming around to the view–which I think is probably correct–that the EU knows deep down that the current austerity regime is unsustainable, particularly in the current no-growth situation for the union as a whole.  Greek may well be the trigger for a more general rethink of a restrictive fiscal policy that simply hasn’t worked.

If so, this would be another reason for a harder look at beaten up EU stocks.