| What will happen now in the eurozone after elections? May 7th 2012, 15:33 It looks as though the whole "bailout" policy may now be in ruins. http://www.bbc.co.uk/news/business-17980446 Quote:
The euro fell against the dollar and the pound on Monday following weekend election results, which cast doubt on European austerity plans.
Pro-bailout parties in Greece performed poorly, while Francois Hollande won the French presidency, promising to focus more on growth.
The euro fell as low as $1.295, its lowest since January, and dropped to three-year lows against the pound...
...Athens shares fell by as much as 8.3%. In London, markets were closed for a bank holiday...
...The interest rates on some government debt has also gone up, indicating a fall in investor confidence. The yield in the secondary markets for Greek 10-year bonds has gone up from 20% to 22.2%.
Asian markets also fell, with the Nikkei in Tokyo dropping 2.8%. South Korea's Kospi shed 1.8% and Hong Kong's Hang Seng dropped 2.4%...
..."The knee-jerk reaction was a little strong, but there's chaos in Greece, and [politicians] being against the deal that was already agreed upon is almost like progress being set back a year and a half," said Scott Freeze, president of StreetOne Financial.
BBC Europe editor Gavin Hewitt says Greece faces political turmoil.
"Pro-austerity parties were punished at the polls. The country will struggle to form a coalition that has the support in parliament for new spending cuts that are a pre-condition for receiving funds from a bailout," he said.
"There will be fresh doubts as to whether Greece can remain in the euro. The new political reality in Europe is that voters appear no longer willing to accept spending cuts, low growth and unemployment."
| Here is a speculative article on France http://www.telegraph.co.uk/finance/c...nd-crisis.html Quote:
What is true is that the CAC-40 index of French stocks has underperformed Germany's DAX by 20pc since last August, an ominous divergence for two countries yoked so tightly together. The yield spread of German 10-year Bunds over French OAT bonds has jumped 90 basis points.
This parting of the ways pre-dates the "Hollande scare". It goes beyond downgrade jitters, or fears of contagion from $710bn of French bank exposure to Italy, Spain, Greece, Ireland, and Portugal (IMF data). It reflects a gut feeling in global markets that France is sliding into deep trouble, clinging to a ruinously expensive social model in a Teutonic monetary union and a Chinese trading world...
French economists say the moment of danger will come later this summer - whoever is elected - as the full force of Europe's contraction crisis hits France.
"They absolutely must cut public spending and control the debt," said Marc Touati from Global Equities in Paris. "It will soon be clear that we are in deep recession. If they don't act fast, interest rates will shoot up and we will have a catastrophe by September," he said...
...Watch the French debt auctions on May 3 and May 16 carefully, says Sophie van Straelen from the French hedge fund consultancy Asterias.
If they go well, a President Hollande may start to think that bond vigilantes will stomach his big state romanticism.
"Our belief is that he has no choice. He must increase taxes and cut spending, otherwise markets could panic and we will have a disaster," she said. The crucial deadline is the budget proposal in July...
,,,Germany took its medicine with the Hartz IV labour reforms eight years ago - under a Social Democrat, nota bene - when the world was humming and EMU competitors were merrily inflating their way into varying degrees of fixed exchange rate Hell.
France will have to take its medicine in less propitious times, somehow clawing back 20pc in unit labour competitiveness against an austere Germany.
It is not easy to see how France can pull this off. Little has been done so far beyond repeal of the infamous 35-hour week. Labour rigidities - employment protection, high tax wedge and minimum wage (SMIC), etc - are among the most entrenched in the OECD club. The unreformed French state takes 55pc of GDP...
...Mr Hollande must know the dangers of "socialism in one country" under a currency peg. He was a Mitterrand aide when such an experiment blew up in 1983, leading to the `tournant de la rigueur' or epic U-turn.
Markets won't wait so long this time.
Yet he may be prisoner of events if he fails to win an outright majority in the legislative elections in June and has to rely on the fast-rising Front de Gauche -- the neo-Communist movement of Jean-Luc Melenchon with 11pc of the vote.
History buffs will remember the events of 1936 when Leon Blum's Front Populaire came to power with "New Deal" rhetoric and Communist backing. Investors rushed for the exits, forcing the franc off the Gold Standard. The money crossed the Channel.
"Conversations in French became increasingly commonplace in the City of London, as French citizens made arrangements to open sterling bank accounts," writes Barry Eichengreen in Golden Fetters, my favourite book on the Great Depression.
There are signs that it is happening again, says Louise Cooper from BGC Partners. If Italians were the biggest foreign buyers of top properties in London last year, the French are catching up this year in the £3m to £5m range.
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