By James Saft
(Reuters) – It’s not simply an austerity backlash in the euro zone; it is a policy backlash, as everyone appears to blame everyone else for a host of overlapping and conflicting policies which clearly aren’t working.
A series of political and monetary ructions are showing that it is very difficult to predict with any confidence what path Europe will choose, much less who will lead it there or even how the euro zone will be constituted and organized.
All of this argues for increased risk premia on euro zone assets, a conclusion duly enacted on Monday by financial markets. Little surprise, given developments:
Conservative French President Nicolas Sarkozy came second to Socialist Francois Hollande in a first round election over the weekend, and is expected to lose a May 6 runoff, leaving France likely led by a man who aims to renegotiate the European fiscal pact to make it more growth-friendly. Sarzoky’s hopes are now pinned on wooing enough of the nearly 18 percent of voters who opted for far-right, anti-immigration candidate Marine Le Pen. Dutch Prime Minister Mark Rutte and his cabinet tendered their resignation after his coalition was unable to convince the anti-immigration, anti-euro Freedom party to sign on for the budget cuts needed to hit EU targets.
On the same Sunday, May 6, that France returns to the polls Greece is to hold an election, with the largest number of seats expected to fall to the New Democracy party, whose leader Antonis Samaras is pledging lower taxes, of all things, and to call a halt to across-the-board wage and pension cuts, expecting to make up the shortfall through better collections. Magic beans have thus far not been mentioned.