France's president-elect François Hollande waves from a balcony at his Paris campaign headquarters on May 7, 2012ERIC GAILLARD/Reuters
The austerity pushback in Europe hasn't spooked markets: The S&P 500 in afternoon trading on Monday was up, European bond yields were stable and French and German benchmark stock market indexes reversed earlier losses and ended the day with gains.
Why? The austerity backlash has been growing more powerful in recent weeks, with French incumbent President Nicolas Sarkozy losing the first round of elections in April – so the weekend's French and Greek election results were hardly surprising. As well, austerity is earning a bad reputation, given that a number of budget-slashing nations – including Spain and the U.K., have slid back into recession.
But via the Financial Times, it is interesting to see a potential third reason for the relative calm: France's incoming president, François Hollande, may be just what Europe needs. For one thing, French and German leaders have apparently gotten on far better when respective leaders have hailed from opposing sides of the political spectrum.
As the FT noted: "Helmut Schmidt and Valéry Giscard d'Estaing, and Helmut Kohl and François Mitterrand are classic examples. On the other hand, Mr. Kohl and Jacques Chirac, two conservatives, never hit it off. As for Ms. Merkel and Mr. Sarkozy, for all the talk of a 'Merkozy' axis, theirs was always an uneasy partnership – a forced marriage, caused by the euro zone crisis."
As well, it sounds as though Germany – home to the most rigid thinking about the need for austerity measures to combat the sovereign debt crisis – may be open to a little austerity-bashing of its own if Mr. Hollande agrees to support the euro zone's fiscal pact, agreed to recently by 25 of 27 countries within the bloc.
"In exchange, Ms. Merkel will be flexible in beefing up a 'growth pact' to run alongside it....," the FT reported. "At least two of the ideas floated by the European Commission in recent months – a €10-billion increase in European Investment Bank capital, and the issuing of jointly guaranteed 'project bonds' to finance infrastructure projects – are getting a fair wind in Berlin."
Project bonds? Austerity now has a whole new look to it.
David Berman