by Colin Moore, AIIMR, Chief Investment Officer
Posted on May 10, 2012 at 5:41 am
Current French President Nicolas Sarkozy was defeated by the socialist candidate Francois Hollande in last Sunday’s presidential election. Sarkozy’s defeat follows the ouster of governments in the Netherlands and Greece among others, as voters appear to be rejecting the German-influenced austerity programs implemented across Europe.
Earlier this year, we pointed out that we believed that Europe was already in recession but still in denial. Twelve European countries are now officially in recession and the voting population is making a very clear statement about their tolerance of austerity programs they perceive to be influence by Germany. Hollande is reported to have said, “It is not for Germany to decide for the rest of Europe.” Clearly, the Franco German alliance is at an end and the rhetoric from Hollande suggests a radically different tone going forward. Hollande has clearly stated he wants greater public spending to stimulate economic growth rather than austerity, and he has already said his first trip will be to Germany. Given it was a central tenet of his campaign, Hollande must come back with revisions to the European restructuring plan.
In an interview in the Hamburger Abendblatt (Hamburg’s evening newspaper), German Chancellor Angela Merkel recaps her position on solving the euro-crisis: “It is important that we break with the idea that growth always costs a lot of money and must be the result of expensive stimulus programs. Proposed programs need political courage and creativity rather than billions of euros.” The difficult challenge for the new Franco-German discussions will be for the Germans to concede just enough to allow Hollande to claim he fulfilled his election campaign claims yet remain true to their own principles.
In Greece, voters have shown equal discontent. Exit polls from Sunday’s parliamentary elections suggest significant gains for the far left Syirza Party and far right Golden Dawn Party. It is unlikely that any one party will be able to form a new government, and forming a stable coalition among such disparate groups will be very difficult.
Greece faces renewed negotiations with the troika of European Central Bank, International Monetary Fund and the European Union in June. It will be easier to herd cats than get a cohesive approach among the new Greek partners, let alone agreement with the troika. The gap in perception about what actions are needed between existing Greek officials and the troika representatives is significant. It appears Greek officials still believe they have leverage over the Troika to ease targets. Meanwhile, at the Troika, “all patience seems to have been exhausted,” according to one report we received. Greece may yet again be a catalyst for significant disruption in the eurozone in coming weeks. This time we will have less unity within Greece and between France and Germany to resolve the issue.
