Markets steady after eurozone crisis reignited by political tumult in France and the Netherlands
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UPDATED:
08:19 GMT, 24 April 2012
Political upheaval in the eurozone has
taken its toll on the financial markets as traders digest Francois
Hollande’s first round election victory in France and the collapse of
the coalition government in the Netherlands.
European stocks plunged yesterday while the euro slid against the dollar
and German bond yields fell to record lows as investors sought a safe
haven.
The FTSE 100 has steadied today, moving up 18.6 to 5,684.2 in early
trading, while on the continent Germany's DAX and France's CAC 40 have
posted mild gains.
Holland and Hollande: Twin threat to eurozone austerity drive unnerves markets
Financial market players have been unnerved by the rise of Francois Hollande, previously best known as the partner of Sgolne Royale, French president Nicolas Sarkosy’s defeated opponent in the last French election
He may never even have emerged as a challenger had it not been for the sexual shenanigans involving former IMF supremo Dominique Strauss Kahn, who was expected to be the socialist candidate.
Equally unsettling is the upheaval in the Netherlands, usually seen as part of the eurozone’s more stable northern core, where Dutch prime minister Mark Rutte handed his resignation to Queen Beatrix yesterday.
Rutte’s minority administration lost the support of the opposition party in a rebellion against spending cuts.
The economy is front and centre of the election campaigning in France, which although a long way from the plight of peripheral eurozone countries, is struggling with lacklustre growth, 10 per cent unemployment, straining public finances and a population unwilling to give up on cherished pensions and welfare benefits.
The country was stripped of its triple A credit rating in January. The alarm at the results of the first round of polling – where hard-right candidate Marine Le Pen fared unexpectedly well – centres around two strands: the possible implications of a Hollande presidency for the stability of the eurozone, and his anti-rich, anti-financial markets rhetoric.
The keystone of Hollande’s economic policy is his opposition to austerity alone and his promise to renegotiate the European fiscal pact to include measures on jobs and growth.
He has pledged to reverse increases in the retirement age and outlined €20billion of new spending over five years, funded by tax hikes for the rich, with a 75 per cent rate on those earning more than €1million a year and a 45 per cent rate on those earning more than €150,000. He has also pledged to limit executive pay to 20 times the average.
Both Hollande and Sarkozy advocate a financial transaction tax, which would have a far bigger impact on the City of London than on the Paris bourse.
Today, the borrowing costs of key eurozone nations will be back under the spotlight.
Troubled Spain is set to auction up to €2billion of Treasury bills, with its yield or interest rate forecast to double from the last sale of similar debt in March. The Netherlands is also due to sell up to €2.5billion of two and 25-year bonds.
Moody's said yesterday that the collapse of the Dutch governing coalition over the failure to agree on austerity measures was a credit-negative for the country, but maintained its Aaa rating with a stable outlook.
The euro is higher against the dollar this morning, making a moderate recovery after yesterday's losses. It's trading at $1.3173 against the greenback – just above the $1.30 danger level closely watched by the markets – and at 0.816 (€1.2256) against the pound.
Unsettled outlook: Stock markets fell after political upheaval in both France and the Netherlands
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