The election results just in from France and Greece, where respectively Francois Hollande has promised to renegotiate the fiscal compact and anti-bailout parties garnered more than 60% of the vote, has reignited fears about the future of the euro.
The French socialist president elect Hollande ran a strong campaign that promised to emphasise economic growth over cutting the country’s budget deficit and to renegotiate the eurozone-wide fiscal compact, which earlier this year laid out EU penalties for those countries that breached agreed budgetary limits and sought to map out an escape route from the on-going euro crisis.
Angela Merkel, the German Chancellor who had backed the incumbent French president Nicholas Sarkozy during the election campaign, reiterated her opposition to the idea of renegotiating the fiscal compact, saying in a Berlin press conference yesterday, “That’s just not on”, reported The Guardian newspaper.
Markets reacted quite calmly to the French election result, with some economists agreeing that growth needs to be emphasised just as much as cutting the national deficits in European countries, if the eurozone is ever to escape its debt-triggered stagnation.
The Greek election result, however, caused a plunge in that country’s stock market which could spread across Europe and elsewhere amid fears that the country is becoming ungovernable. The first attempt to form a government after the inconclusive election, with no party winning an outright majority, quickly collapsed when the centre-right leader, Antonis Samaras, cancelled talks due to the fact that no coalition partners were prepared to agree to the stick to the strict terms of the second €130bn Greek EU bailout.
With anti-austerity parties in the ascendant in Greece the future of the country’s tenure in the eurozone is once more up for debate, and the country’s exit from the currency may now come sooner than anyone expected.
The plans that many treasurers have been working on to deal with a disorderly Greek exit from the euro and potential knock-on effects and currency instability elsewhere, may have to be activated shortly if a new Greek government, which agrees with the EU-imposed budgetary restrictions of the second bailout, cannot be formed.
Another twist in the on-going euro crisis is once more playing out before the world’s eyes after markets and corporations had earlier been calmed at the start of the year by the fiscal compact, now under threat from Hollande, the second Greek bailout, and the long-term refinancing operation (LTRO) undertaken by the European Central Bank (ECB) to recapitalise European banks.
The primary of risk averse practices and policies will no doubt have been further reinforced in treasurer’s minds following the latest developments in Europe. The fundamentals of the debt problem are once more resurfacing for everyone to see.
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