Jeremy Hobson: An end to austerity, that’s what the winners of yesterday’s elections in France and Greece say voters want.
Both countries shook up their leadership – with Socialist Francois Hollande beating Conservative Nicolas Sarkozy for the Presidency in France, and anti-austerity parties taking more control of the Parliament in Greece.
Marketplace’s Stephen Beard is with us live from our European desk in London with more. Good morning.
Stephen Beard: Hello Jeremy.
Hobson: Are we waking up to a new reality in Europe this morning?
Beard: Yes, this does strengthen the hand of those in Europe who argue that austerity is not the best way to deal with government debt – that countries should try to grow their way out of trouble.
The French vote, says Lena Komileva of G+ Economics , is futher evidence that the people of Europe don’t want any more budget cuts.
Lena Komileva: Ultimately it’s a backlash against the current status quo – the current direction of economic management – against austerity and against bailout.
So the French result could strain relations between France and the pro-austerity Germans. But there’s something else here: the election also saw a big upsurge in opposition to the Euro itself in France, which could oddly enough, have big implications for the weakest Eurozone nation – Greece.
Hobson: You’re saying the the elections in France are going to impact Greece as much as the elections in Greece?
Beard: Yes, because these elections in Greece were indecisive and left the country in total disarray. And it raises the possibility that Greece after all this trouble will default.
Some analysts are saying the French and the Germans may then decide that because of all these strains the Euro is on the brink – it’s in real danger of falling apart. And they could then decide to get rid of the country which many see as the initial source of all the trouble: Greece.
Hobson: In this country, and even in the U.K., what can we take away from all this? How does this matter to the global economy?
Beard: Well this matters because its more doubt and uncertainty just as there are worries about the U.S. recovery faltering and China slowing down – one more problem the world economy could well do without.
(TEXT OF PREVIOUS INTERVIEW)
Hobson: Well Stephen, let’s start with France.
Beard: This is the sixth occasion when a European political leader – in the case of Sarkozy – has fallen largely because of voter discontent against austerity.
The new guy, Francois Hollande, comes to power saying we must have growth. He’s planning to increase public spending. He says he’s going to renegotiate the new tighter budget rules championed by Germany.
This seems to put France on a collision course with its most important Eurozone partner, Germany. Here’s Lena Komileva of research house G+ Economics.
Lena Komileva: The change in the French presidency will almost certainly inject political uncertainty in the Eurozone’s core, disrupting the Franco-German axis of cooperation, while at the same time it will export additional financial stress to the Eurozone’s periphery, especially to the likes of Italy and Spain.
Beard: And the borrowing costs of Spain and Italy and Greece have been rising this morning. the interest rate for Greece’s 10-year government bonds has now hit 22 percent.
Hobson: Let’s talk about Greece. It’s been at the center of the debt crisis and there have been some changes there over the weekend.
Beard: Yes indeed. And this election result poses the most immediate threat to financial markets because it raises even further the possibility of a Greek default.
There is now the possibility that the left-wing coalition – these are the guys that were involved in yogurt-throwing demonstrations during the election campaign – it is possible they might form a government. If they do, they’ve pledged to scrap the bailout agreement. That would lead very likely to a Greek default.
Hobson: Marketplace’s Stephen Beard in London. Thanks very much.
Beard: Okay Jeremy.