As Greece regroups, EU summit is next up

— -- A day after the Greek election, it's possible to guess what the plan to do next about Europe's financial crisis will be.

More uncertain is whether all the necessary parties will agree, and whether it will work.

Markets reacted with relief after Greece's New Democracy party won a plurality in Sunday's parliamentary elections. It supports the existing deal to bail out the nation in exchange for deep budget cuts and other reforms.

As New Democracy leader Antonis Samaras scrambles to form a coalition government, investors and political leaders focused on what short-term changes to the deal Greece might seek to cope with a 21.7% unemployment rate, and how to head off bank runs in nations such as Spain that threaten to deepen Europe's crisis further.

The new agenda could begin emerging as soon as the European Union summit June 28-29. At bottom, the trade may be that Greece reaffirms its commitment to the broad terms of its bailout deal in February, when Greek debt held by private investors was written down 70% and Greece agreed to slash spending by $14.5 billion by next year. Europe may give Greece more time to deliver cuts and finance Greek infrastructure projects to provide jobs to offset those lost to budget cuts.

"It doesn't mean no austerity, it means less immediate austerity," said Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics in Washington.

The next act will likely be a push to unify continent-wide banking regulation, Moody's Analytics chief economist Mark Zandi said. Part of that will be pan-European deposit insurance to assure that depositors anxious about conditions in weaker nations such as Spain or Greece don't stage withdrawal runs that will cripple banks and destroy regional access to credit, causing even deeper Southern European recessions, he said.

Going along with that will be more European-wide regulation of banks, as the European Central Bank steps into a role such as the one that the Federal Reserve plays in the U.S., Zandi said.

Over time, talks will focus on how much to allow continent-wide regulatory bodies, some of which haven't been created, to oversee fiscal policies of the 17 eurozone states in exchange for allowing them to use the common currency and for Germany and other rich nations to support so-called eurobonds, which would be guaranteed by the whole European Union, Kirkegaard said.

"The Germans understand what has to be done, and they are building the political capital to do it," he said.

The politics of making even a small part of that happen are extremely difficult, said Douglas Rediker, a senior fellow at the New America Foundation.

The cuts are politically difficult to sell in debtor nations, while German voters and politicians need to be convinced that their concessions won't be ignored by other countries that continue to run big deficits and endanger Germany's credit, Rediker said.

"You can agree on what's needed, but even then, it's very hard to agree on what comes first," said Rediker, who until this year was a U.S. representative on the executive board of the International Monetary Fund.