European Markets Poised to Rally on Greece Vote

European markets are poised for a relief rally after parties that support Greece�s multinational bailout appeared to eke out a razor-thin victory in Sunday�s election re-run.

Center-right party New Democracy won the most votes and analysts expect it to form a coalition government with Pasok, a center-left party. That isn�t a slam dunk, as the impasse after last month�s election showed. But the euro-zone sovereign-debt crisis has escalated since then and the stakes are higher than they were six weeks ago, putting more pressure on Greece’s political leaders�to do the right thing.

Failure to form a coalition government of parties opposed to the bailout would be a disaster for Greece and the euro zone. Such an outcome would accelerate Greece�s departure from the common currency and establish a dangerous precedent.

According to official projections, New Democracy snared 29.5% of the votes cast Sunday compared with 27.1% for Syriza, a party formed from a disparate alliance of left-wing groups that has grown in popularity after tapping into public anger and discontent at the harsh economic conditions imposed on Greece in return for aid. Pasok bagged 12.3% of the vote.

Greece�s parliament comprises 300 seats. Out of that number, 250 seats are allocated proportionally to parties that win more than 3% of the votes cast. Additionally, the party that wins the most votes gets a bonus of 50 seats to help it secure a majority.

If the remaining votes from Sunday�s election reflect the pattern of projections, New Democracy and Pasok together will have about 153 seats, enough to form a coalition government. New Democracy, led by Antonis Samaras, will have three days to negotiate a deal.

Markets across Europe will get a lift of as much as 3% to 5% from a result that sees New Democracy heading a government, though any gains will be short-lived. Central banks stand ready to provide liquidity to prevent markets from being roiled.

The mood in Greece Sunday was given a lift by the national soccer team�s upset 1-0 win late Saturday over the strongly favored Russians at the European Championship in Poland. Greece has had little to cheer in recent months.

Check the Barrons.com Stocks to Watch Today blog for more updates on the fallout from the election.