The Euro’s trapdoor: Elections
Europe is once again in disarray this year as Spain announce they will miss their budget targets, the effects of the ECB’s one trillion euro injection ware off and a year of elections see the public strike back at current governments. This last point is arguably the most important as elections around Europe have changed the balance of the EU and caused panic in the markets.
First up is France, who recently elected Francois Hollande as their new president. He is expected to cause a shake up within the EU as he calls for growth over austerity, rebels against Germany’s hold over Europe and expects to tax the French people more rather than cut spending (going against the current trend). Mr Hollande was also clearly not the candidate the rest of Europe favoured as Angela Merkel publicly backed Nicolas Sarkozy in the election and both David Cameron and Mario Monti refused to make time to meet him when he was a candidate, showing a general worry around Europe that Hollande could push the EU off course. But then his ideas aren’t that radical; he is arguing for a Growth Compact alongside the Fiscal Compact that will probably include policies already in place, he talks of austerity going too far but still agrees with reducing France’s budget deficit to 3% of GDP and while many are making a fuss over the French-German alliance breaking up, Francois Hollande’s contrasts with Angela Merkel might keep the EU more in check than the similar minded Sarkozy did. Even so, the elections show that it is clear France have chosen to change the direction that their country is heading in; from a globalised leader of the euro to a country that is looking at creating more trade barriers and reducing the power of the EU.
Hollande will have to learn to like austerity if he is to cut the French budget deficit.
Next up is Greece, where no party could gain enough votes to create a government, leaving many worried about the future of the country. The two biggest parties: the New Democracy party (Conservative) and Pasok party (Socialist) both experienced shocking results as their share of the vote fell from around 80% to lower than 30%. The Greek people instead voted for a range of anti-austerity parties, leaving no chance for a government to be elected as parties with contrasting policies refused to join in any coalition. The only hope is that a second round of elections will see the vote concentrated more on one or two parties as another scattered approach will cause many problems. But more important than the results of the next election is the message behind it, that the Greek people are heavily against the current bail-out scheme being forced onto their country. The problem is that there is no conceivable way around it, the EU will loath to re-negotiate the bail-out measures once again after writing off half of Greece’s debt at the start of the year. A real possibility now is that Greece will leave the euro, a frightening thought as the rest of the EU is still not ready for such an event despite it being the topic of discussion for over two years now. This election has thrown a spanner in the works of Greece’s debt reduction plan and if radical parties can get into power in the next election, then Greece could refuse to pay back its debts, a move that could have far reaching effects around the Globe.
Greek election results.
The French and Greek elections have been the biggest elections in Europe so far, but both Britain and Italy have experienced damaging results in local elections. In Britain, the Conservatives lost 404 seats and the Liberal Democrats lost 330 seats, allowing Labour to gain 823 seats in total. This was a crushing result for the Coalition government and showed the public disapproval in the government’s performance, in fact if this was a parliamentary election then Labour would have won a majority government comfortably. In Italy, voters showed their disapproval by either voting for protest parties or by not voting at all (with the turnout at just 67%, compared with the French elections which had an impressive 80% turnout). One of Italy’s biggest losers was Berlusconi’s People of Freedom party, going from 37.6% to just 11.6% of the vote, as disapproval with the former prime minister has fallen onto his party. The problem with Italy is that while Mario Monti has done a respectable job at reforming the country, he is only a short term occupant, appointed as a technocrat leader by the coalition government to help sort out the nation’s economy. When he leaves next spring, Italy will face a hard job replacing someone who has united the different factions of the government superbly as a neutral.
This is not to mention the recent breakup of the Dutch government over budget cuts, with elections to be held soon to create a new coalition. While Angela Merkel’s party lost a local election in a key German state to their socialist rivals. Overall, this year follows a trend of countries chucking out their governments since the financial/euro crisis started. The UK voted in the Conservatives/Liberal Democrats in 2010 and chucked out Labour, while last year Italy voted out Berlusconi and Spain voted in Mariano Rajoy. The austerity measures currently being employed in Europe have left the public angry at the job cuts and new taxes that are popping up, but any possible new governments won’t have much choice to deviate from this plan. Any that does will be punished by the markets and perhaps shunned by the rest of Europe.
Austerity is a tough pill to swallow, but voting out the current governments will only lead to the same result at the end of the day.