Seldom has the world watched an election anywhere as anxiously as it awaited the result of the election in Greece yesterday. To the great relief of the euro zone and the world's economic outlook, Greeks voted for the more sensible of their leading parties. The result was closer than the allocation of parliamentary seats makes it appear. A 50-seat bonus for the winning party will allow a party that broadly accepts Europe's bail-out conditions to form the next Government.

The party went to the election with a policy to try to soften the conditions of the country's latest bail-out but not to renounce them entirely, as its left-wing rival proposed to do, believing it could call Europe's bluff and remain in the euro. When that party did well in an inconclusive election last month, European banks began to seriously prepare for a Greek currency change, ceasing lending to Greek banks, companies and institutions, and trying to hedge their outstanding loans with deposits that could be devalued by a conversion to the drachma.

Nevertheless, the prospect of a Greek exit from the euro carried the horror of any unprecedented economic step. Nobody knew what would happen to bond market confidence in other heavily indebted economies, especially big economies such as Spain and Italy, if European monetary institutions failed to stand behind a relatively small economy such as Greece.

"Contagion" was one possibility, catharsis was another. A "Grexit" might have been salutary for all concerned, demonstrating that bond markets can distinguish between countries with the same currency and that all member countries had a choice - to make their economic policies live up to the euro or to leave it.


Now we might never know whether contagion or catharsis would have been the consequence. With luck, the election result will turn out to be the catharsis that Europe and the world economy needs. Stock markets and exchange rates have risen on the result.

The triumph of common sense in Greece could be matched, when the time is right, by more generous concessions by Germany and other well governed euro states. A meeting of the G20 leaders that began in Mexico overnight is bound to put further pressure on Chancellor Angela Merkel to agree to some relaxation of the terms of the latest bail-out. But she should not be asked to commit Germans to anything definite until a new Greek government has been formed and its requests are known.

In the wake of the election the G20 would do better to keep the heat on Greece, endorsing the fiscal standards that a common currency requires. It remains untenable to ask poorer places such as the Baltic states, which have endured difficult economic reforms, to bear the borrowing costs of countries that would be free to vote themselves welfare entitlements and avoid the tax that would pay for it.

Tax avoidance, already rife in Greece, became epidemic in the lead-up to Sunday's election. Even a candidate on the winning party's list was caught up in an alleged illegal transfer of US$1 million to a London bank. The party's leader, Antonis Samaras, was a late convert to bail-out requirements. As Opposition leader he attacked the 2010 crackdown on tax avoidance that was a condition of the first bail-out agreement.

It was not until he helped bring down the government of George Papandreou a year ago that Mr Samaras came to believe Greece could be forced out of the euro. It has taken him two elections now to convince enough Greeks of the danger. As their new Prime Minister he could take some decisive steps. If he does, the world might heave a sigh of relief and confidence might be rekindled for a global recovery.