4th May 2012
nShaMy first blog back in February asked if markets or voters would have the upper hand this year. I commented that unhappy populations, angry at continued austerity measures, would vote for policies that would put money back in their pockets. But I concluded that markets would have the final say, forcing any new leader to dilute grandioso election promises and get on with the job in hand, even if it meant compromise.
Europe’s leaders have struggled to find a common political narrative with which to address the crisis and two years on from the first bailout, the continent still faces huge problems: social unrest, huge government debt and high unemployment to name a few. And the Voice of the EU voting population is certainly now being heard.
At the end of April, the minority coalition in the Netherlands collapsed when previously agreed budget proposals were voted down as the Fiscal Compact, fostered by Sarkozy and Merkel, was suddenly deemed too harsh. And if Hollande wins as voters go to the polls in France on Sunday, he too is likely to challenge the Fiscal Compact in favour of more growth and employment targets.
The French aren’t the only ones visiting the polling booths this weekend. The Greeks will be doing the same thing. Latest polls there suggest that the votes are being shared amongst many parties, with no obvious signal as to which party would lead a coalition. But importantly, the leaders of the only two parties to be in favour of current austerity measures have already said they won’t work together.
So change seems to be afoot, with growth, not austerity, higher up the political agenda. But change is always a difficult process and questions are already being asked about a breakdown of the axis of solidity in the heart of the Eurozone. As Virginie Maisonneuve, Head of Global & International Equities at Schroders commented:
“The economic and social fragmentation in Europe is now more alive than ever.”
Austerity alone is increasingly understood to be an insufficient cure. But completely abandoning the strategy just to appease the voters isn’t the answer either. A more balanced approach between austerity and growth is what is called for and I still believe that markets will force this more middle ground approach. Until we get this though, markets will react badly to uncertainty and volatility will remain.
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