Questions From The Continent by Joe Preisser

Uncertainty swept over Europe this week as the electorates of both France and Greece took to the polls last Sunday and expressed their exasperation with the current rash of austerity measures, implemented in order to combat the Continent’s sovereign debt crisis, by removing the incumbent parties.  Investors around the world cast wary eyes on the collection of sovereign states which comprise the monetary union as the outcome of the recent elections has placed the stability of the euro zone in some semblance of doubt.  The current inability of Greece’s rival factions to form a government, combined with the questions surrounding the new regime in France, has led to sharp moves in global equity markets which in all likelihood will continue as long as a lack of clarity remains.

The weekend brought change with it to Paris, as Francoise Hollande was elected to serve as President of France, becoming the first socialist to hold the office in seventeen years, in a rebuke of the German led push for deep spending cuts advocated by his successor, which have become increasingly unpopular.  Mr. Hollande gained in popularity largely due to his pledge to shift the focus of the government toward promoting economic growth within the nation, which garnered broad appeal among an electorate exhausted by spending cuts.  The New York Times on Tuesday highlighted one of the key differences between the President-Elect and Mr. Sarkozy, “Mr. Hollande, in contrast ran on a promise of rebalancing Europe away from austerity and toward growth, and his narrow victory is seen in Washington as a public rejection of governments imposing strict cuts on battered economies.”  The election results from France had been largely anticipated by the world’s financial markets, and as such were not accompanied by the negativity of uncertainty, but have instead been viewed with a tinge of optimism stemming from Mr. Hollande’s purported focus on growth.

In stark contrast to the conclusion of the contest in France, Sunday’s election in Greece has thrown the nation into a state of relative chaos, as the country’s two main parties have been unable to garner enough votes to sustain a majority, thus creating a vacuum of uncertainty which has led to steep declines in world indices.  The Greek electorate voiced their opposition to the raft of austerity measures demanded by their international creditors, in exchange for the rescue funds the country so desperately needs, by removing the incumbent leaders.  The inability of the nation’s politicians to forma coalition capable of governing has culminated in the probability of an additional round of elections being called in early June, which will likely determine if Greece remains a member of the European Union.  James McDonald, the chief investment strategist for Northern Trust was quoted by Bloomberg News as saying, “The concern is about the potential that Greece does not carry through on their agreements and they default and leave the euro.”

The leaders of Europe’s monetary union find themselves in a precarious position, however if they are able to adroitly shift their policies to a more equally weighted mix of both austerity and growth they may in the end strengthen the ties which bind them together.

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