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Greek, French Voters Reject German-Led Austerity, Markets Fall After Elections

Greek, French voters reject German-led austerity

By Noah Barkin

BERLIN | Sun May 6, 2012 5:41pm EDT

BERLIN (Reuters) -

Greek voters dealt a serious blow on Sunday to the fragile political consensus that has kept Europe's currency bloc intact through more than two years of crisis, rejecting the austerity-for-aid policies that have shielded the country from bankruptcy and a euro exit.

Greece's vote, combined with the victory of Socialist Francois Hollande over incumbent Nicolas Sarkozy in a French presidential election, will raise pressure on Europe's paymaster Germany to pursue a more growth-oriented approach to the crisis.

But it is far from clear whether Chancellor Angela Merkel, whose insistence on tough deficit reduction in vulnerable southern euro members is popular in Germany, will take more than symbolic steps in that direction, even after Sunday's elections.

"This shows that politics is getting out of control in Europe, the gap between politicians and voters is widening, that's what you see in Greece, that's what you see in France," said Steen Jakobsen, chief economist at Saxo Bank in Copenhagen.

"Clearly, voters across Europe have started to send the message: ‘we are not ready to do the reforms', and that's worrying."

More immediately, the struggle of Greece's two big pro-bailout parties - conservative New Democracy and socialist PASOK - to secure a parliamentary majority raises questions about whether Athens can stay in the euro zone in the long run, and may spark a new wave of contagion to other member states.

The Greek result puts Hollande, a novice on the international stage who has never held a ministerial post nor met Merkel, in the hot seat from day one.

Investors worried about Greece's future and the arrival of the first Socialist in the Elysee Palace in 17 years, could punish European financial markets starting on Monday, pushing the entire bloc back towards crisis-mode.

Hollande must cobble together a new government rapidly and prove that France, which alongside Germany has led Europe's response to the crisis, is capable of taking the quick decisions needed to keep the 13-year old currency zone together.

"His room for maneuver will be really tight," said Fabrice Couste, head of CMC Markets in Paris.

SPAIN IS KEY

Perhaps the most crucial question for Europe over the coming days is whether markets, spooked by the elections, renew their attacks on a big euro zone state like Spain, which has pressed ahead with deep budget cuts and economic reforms in a desperate bid to win back the confidence of investors.

Both Spain and Italy are considered "too big to fail" and would severely test Europe's resources if they required the kind of bailouts Europe has already given to Greece, Ireland and Portugal.

"In many ways Spain remains a bigger problem than Greece because of its size," said Charles Grant, director of the Centre for European Reform think-tank in London.

Worried about contagion, European leaders agreed earlier this year to bolster their "firewall" for protecting vulnerable states to 700 billion euros. Last month, the International Monetary Fund (IMF) coaxed an additional 430 billion euros in new crisis-fighting funds out of its members.

The European Central Bank, in a further step, has made massive amounts of liquidity available to vulnerable banks, a move which calmed markets in the first months of 2012 before concerns about Spain's dire economic state resurfaced.

Both Greece and Spain have endured austerity that has pushed their unemployment rates close to 25 percent and led to a severe contraction in economic activity. Pensions have been slashed, public sector workers fired and taxes hiked.

Hollande's campaign was predicated on a new approach to the crisis that would put growth first.

He is expected to travel to Berlin as soon as he is sworn in to begin negotiations on a new "growth pact" for Europe that would complement Merkel's "fiscal compact" - a set of rules to anchor German-style budget discipline across the euro zone.

New measures to bolster growth are expected to include steps to increase the firepower of the European Investment Bank (EIB), make more flexible use of EU structural aid funds and so-called "project bonds" to fund investment in infrastructure projects like highways, bridges and energy networks.

A Franco-German deal could be rubber-stamped at a summit of EU leaders in Brussels in late June. But few economists believe the pact will make much of a difference for countries on Europe's hard-hit southern periphery.

Nor do they think Hollande can afford to weaken France's own commitment to deficit reduction or jeopardize its relationship with Germany by pushing for bolder steps considered taboo in Berlin, like joint euro zone bonds, big stimulus programs or delays in meeting fiscal targets.

"Germany remains the political and economic hegemony in the euro zone. This is a point that Hollande will at some point have to come to terms with," Eurasia analysts wrote.

"What we are most likely to see is a flurry of announcements and initiatives, none of which will make a serious impact on short or medium-term growth prospects."

EXIT RISK

That would increase the odds of a backlash that could stir popular unrest that Europe's policymakers cannot control.

In Greece, the country where the crisis first erupted in 2009, voters punished the parties that have dominated politics for decades.

New Democracy and PASOK, the only parties that support the EU/IMF bailouts that have helped Greece avert bankruptcy, looked set to secure well under 40 percent of the vote together, and may struggle to form a parliamentary majority.

Extreme parties on the left and right scored unprecedented gains, in a pattern that has repeated itself in elections across Europe.

At the very least, Greece seems likely to face weeks of political uncertainty. Next month, parliament must approve over 11 billion euros in new spending cuts for 2013 and 2014 if the country to receive its latest aid tranche.

"Before the elections, we had pointed to a 40 percent risk that the flow of support to Greece may stop and Greece may thus be forced to exit the euro later this year," said Holger Schmieding, chief economist at Berenberg Bank. "The exit polls suggest that the risk has certainly not decreased."

European leaders signaled at a G20 summit in Nice last November that they would be prepared to allow Greece to leave the bloc if the Greek people refused to support the conditions of their bailout.

And German Finance Minister Wolfgang Schaeuble hinted at a possible euro exit on Friday, saying that Greece would have to "bear the consequences" if it did not elect a government ready to comply with the demands of its international lenders.

But an exit of any member would be a humiliating setback for the currency bloc and as there is no legal mechanism for a country to leave, the obstacles are high. A Greek exit would also set a dangerous precedent as markets could quickly bet on another country leaving.

That means a Greek departure is unlikely to happen soon, even if an angry electorate appeared to reject the policies that have kept the country on life-support and in the euro zone.

"I think it's very hard to see how Greece can stay in the euro in the long run. It's the only country where there are no signs that the medicine is working," said Grant of CER. "But even if Greece wanted to leave it would take a very long time."

(Editing by Anna Willard)

Markets Fall After Anti-Austerity Wins in French and Greek Elections

By News Wires (text)

France 24, 2012

AP -

Renewed uncertainty over Europe’s ability to deal with its spawning debt crisis following elections in Greece and France hammered stock markets Monday, with the main exchange in Athens down a massive 8 percent.

Investors have been particularly spooked by the Sunday election in Greece, which has resulted in a split Parliament where no party looks like it will be able to form a government. The two parties that governed as a coalition for the past six months were pummeled to the benefit of more extreme parties of the right and left. The socialist Pasok party suffered the biggest retreat. Its share of the vote collapsed from around 43 percent in the last election in 2009 to a little over 13 percent.

A period of uncertainty looms for the bailed-out country, which is in its fifth year of recession and has over half its youth out of work following big spending cuts and tax increases in return for crucial international bailout funds. If no government can be formed that can command a majority in Parliament, another general election within the next two months seems possible.

“As for the Greek elections, they resulted in complete uncertainty with the possibility of another election taking place in the near future in order to try and put in place a government that can actually have some modicum of control,” said Gary Jenkins, managing director of Swordfish Research.

With more than 99 percent of the vote counted, conservative New Democracy led with 18.9 percent and 108 of Parliament’s 300 seats. Party leader Antonis Samaras, who backs Greece’s bailout commitments for austerity, will launch coalition-forming talks later in the day.

Further weighing on sentiment is Sunday’s defeat of French President Nicolas Sarkozy to his socialist rival Francois Hollande, who has campaigned on the need for more growth-generating economic policies and less reliance on austerity. Final results from France’s presidential election show Hollande narrowly defeated incumbent Nicolas Sarkozy with 51.62 percent of the vote.

Even German Chancellor Angela Merkel suffered a setback Sunday in a regional election in the northern state of Schleswig-Holstein. Merkel and her government have borne the brunt of the criticism over Europe’s austerity drive.

“Election defeats for President Sarkozy, and for the main coalition parties in Greece and for Angela Merkel’s party in Schleswig Holstein highlight voter backlash against austerity, economic contraction in unemployment,” said Neil MacKinnon, global macro strategist at VTB Capital.

In Europe, Germany’s DAX was down 1.4 percent at 5,468, while the CAC-40 in France fell 1.2 percent to 3,125. The FTSE 100 of leading British shares was closed for a public holiday. Greek shares suffered worse, trading 8.2 percent lower.

In the currency markets, the euro recovered some of its poise after falling to a three-month low against the dollar during Asian trading hours.

It was up 0.4 percent at $1.3018, having earlier fallen to a low of $1.2972. Wall Street was also poised to open lower with Dow futures and the S&P 500 futures both 0.7 percent lower.

Earlier in Asia, Japan’s Nikkei 225 index plunged 2.8 percent to close at 9,119.14 - its lowest finish in three months - with the market’s export sector also sapped by a rising yen. Hong Kong’s Hang Seng slid 2.6 percent to 20,536.59. In other Asia markets, Australia’s S&P/ASX 200 lost 2.2 percent to 4,301.30 and South Korea’s Kospi shed 1.6 percent to 1,956.44.

Oil prices fell alongside equities, with the benchmark New York rate down 91 cents at $97.58 a barrel.

FRENCH ELECTIONS 2012 Hollande ousts Sarkozy in French presidential vote

GREECE Greek voters punish ruling coalition over austerity

Date created : 07/05/2012

 

Greek voters punish ruling coalition over austerity

Voters delivered a blow to Greece's traditional ruling parties, the conservative New Democracy and the Pasok socialists, on Sunday as voters moved to anti-austerity parties on the far right and left. Nobody won enough votes to form a government.

By News Wires (text)

France 24, May 6, 2012, AP --

Furious Greeks punished the two parties that have dominated politics for decades in the crisis-battered country Sunday, leaving its multibillion dollar international bailout - and even its future in the euro currency - hanging in the balance.

With more than 83 percent of the vote counted, Greece appeared to be heading toward political stalemate. Nobody won enough votes to form a government, and the two parties that backed the bailout - the conservative New Democracy and socialist PASOK - conceded they need to win over adversaries to form a viable coalition.

“I understand the rage of the people, but our party will not leave Greece ungoverned,” said New Democracy leader Antonis Samaras.

New Democracy was leading with nearly 20 percent of the vote, which would give it 110 seats in the 300-member parliament. PASOK, which has spent 21 years in government since 1981 and stormed to victory with more than 43 percent in 2009, saw its support slashed to about 13.5 percent. It will have just 41 seats, compared to 160 in the last election.

The two parties saw their support plummet to the lowest level since 1974, when Greece emerged from a seven-year dictatorship. The outcome showed widespread public anger at the harsh austerity measures imposed over the past two years in return for rescue loans from other European Union countries and the International Monetary Fund. Without the funds, Greece faced a disastrous default that could have dragged down other financially troubled European countries and seen it leave the euro.

Voters who deserted the two mainstays of Greek politics in droves headed to a cluster of smaller parties on both the left and right, including the extremist Golden Dawn, which rejects the neo-Nazi label and insists it is nationalist patriotic. The movement has been blamed for violent attacks on immigrants and ran on an anti-immigrant platform, vowing to “clean up” Greece and calling for land mines to be planted along the country’s borders. The party looked set to win about 7 percent of the vote, giving it 21 deputies in parliament - a stunning rise for a group that earned just 0.29 percent of the vote in 2009.

Sunday’s other big winner was Alexis Tsipras, the 38-year-old leader of the Radical Left Coalition, or Syriza, who saw his party poised for an unprecedented second place with 16.4 percent and 51 seats - the first time in nearly 40 years that any party other than New Democracy or PASOK has held the spot.

Turnout stood at just over 64 percent - a low figure for the country, where voting is officially compulsory, although no sanctions are applied for not casting a ballot.

Negotiations are expected to begin Monday to form a coalition. As first party, Samaras will get three days to seek partners. If he fails the mandate will go to the second party for a further three days, and then to the third party. If no agreement can be reached, the country heads to new elections.

Both Samaras and PASOK leader Evangelos Venizelos, who spent nine months as finance minister, indicated any unity government would have to include more than just their two parties.

But in a note that will likely raise alarm among Greece’s international creditors, Samaras insisted any coalition should renegotiate the terms of the country’s bailout.

“We are ready to take up the responsibility to form a new government of national salvation with two exclusive aims: For Greece to remain in the euro and to amend the terms of the loan agreements so that there is economic growth and relief for Greek society,” he said.

Riding high on his massive gains, Tsipras stuck to his anti-bailout position, saying the agreement should be overturned altogether.

“The people have rewarded a proposal made by us to form a government of the Left that will cancel the loan agreements and overturn the course of our people toward misery,” he said before heading out to meet throngs of jubilant supporters.

More than two years of repeated austerity measures that have included pension and salary cuts and waves of tax hikes have pushed Greece into a deep recession that has seen the jobless rate explode and tens of thousands of businesses close.

Venizelos insisted his party, which was in power from the start of the crisis in late 2009 until a political crisis forced it into an uneasy coalition with New Democracy, had no choice but to impose the spending cuts.

“For us at PASOK, the day is particularly painful,” he said. “We knew that we would pay the price, having taken an emotionally and political unbearable position to take the measures that were necessary.”

He called for a broad coalition of pro-European parties, regardless on their stance on the bailouts.

“A coalition government of the old two-party system would not have sufficient legitimacy or sufficient domestic and international credibility if it would gather a slim majority,” Venizelos said. “A government of national unity with the participation of all the parties that favor a European course, regardless of their positions toward the loan agreements, would have meaning.”

The political leaders, humbled by the drubbing in the polls which saw their combined support drop to about 33 percent, compared to a historical average of 80 percent, will have to work fast to ensure their country doesn’t slide into protracted political instability. Greece’s international creditors are also looking to see whether it will introduce new measures expected in June to ensure the country meets the fiscal targets of its rescue loans.

GREECE Greece set for critical vote amid eurozone fears

GREECE Greeks speak out ahead of key legislative elections

GREECE S&P raises Greek rating out of default status

Date created : 06/05/2012