A necessary evil?
While market players nervously chew their nails over the Greek election result, the French market is calmly absorbing news of a socialist victory in its own presidential race.
Francois Hollande has defeated half the “Merkozy” austerity titan, and panic is nowhere to be seen. Of course, the feeling that cuts might not quite be best way to spark growth has been building for a while but today brings some confirmation that a new consensus is forming.
John Bennett, director of European equities at Henderson, believes the French result might be essential.
“Unfortunately, the austerity medicine prescribed by the (Merkozy) axis has been killing the eurozone patient, particularly the more sickly members who do not have the strength to tolerate the dosage.
Hollande has stated he would like to renegotiate the fiscal compact agreed between member states. This could pave the way for a period of volatility as the ratings agencies bleat their disapproval but such a move is born of pragmatism that more needs to be done to promote growth.
For Sarkozy, such a blatant change of tack would have been awkward if not impossible. For Hollande, it is relatively easy since his win gives him the mandate for change. Will Germany tolerate a shift in stance? Probably, since the only option is to risk being isolated within the eurozone.
Will the markets be forgiving? Probably, since otherwise Europe risks becoming a textbook case of the Paradox of Thrift. A shift in mindset towards a focus on getting Europe moving again rather than relentless cuts is exactly what the doctor should be ordering.”
Bennett clearly believes the demise of the “vainglorious” Sarkozy is a good thing for Europe, and is standing by a relatively sanguine view on European equities… assuming investors have the nerve to wait it out. His team continues to find it “compelling that global businesses whose domicile happens to be Europe have the potential to reward handsomely the patient investor… As ever the scarce yet fundamental commodity is patience.”