European socialists celebrate Bastille Day - Perpetual's Matthew Sherwood
May 10, 2012 Business News(PRLEAP.COM) Economic data and election results over the weekend have sparked a new round of concerns for global investors. Most sharemarkets have experienced sizable losses after US non-farm payrolls came in weaker than expected (with only 115,000 additional jobs created in April 2012, relative to an expectation of 160,000). However, investor's primary concern at this stage is not the US economy (this data only suggests the US recovery is a bit softer than initially forecast), it is Europe. Elections in France and Greece culminated in a much larger protest vote against recent austerity measures than was initially expected and this sparked fresh concerns about the stability of the world's largest economic region.
French President Nicolas Sarkozy became the eighth European leader in little over a year that agreed to slash budgets to solve the debt problems, but was subsequently hammered by the electorate. He also became the only French leader in 31 years not to be re-elected. He conceded defeat to his socialist opponent Francois Hollande who celebrated in Bastille Square, where François Mitterrand celebrated the Socialists' inaugural Presidential win in 1981. Mr. Hollande's campaign was centred on a promise to renegotiate Europe's fiscal compact with Germany and return France's fiscal position back to balance within five years. While this latter point would have been welcomed by investors, it was undermined by commitments to reverse increases in the retirement age and significantly increase France's minimal wage and this culminated in France's borrowing costs rising during the campaign.
These political complications come at a time when economic data has confirmed that the services sector in all of Europe's large economies (with the exception of Germany) are contracting and elections in Greece produced inconclusive results. The dramatic collapse in support of Greece's mainstream pro-Europe parties means that further elections are likely to be needed within months, adding to the political uncertainty. The European election results place some risk on recently agreed budget reforms and are additional complications for investors to digest, and this has led to a weakening in global investor sentiment. While worries about Greece are likely to be more immediate than France's, the latter is a bigger medium-term problem, not only because France's economy is nine times larger than Greece's but also because the last time a socialist was elected to lead France, its sharemarket declined 21% in the first year. History is no guide to the future, but investors are nervous and will be watching the Greek Parliament and President Hollande's actions in the months ahead.
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