Are we, for the third year in a row, about to see Europe end a promising global economic rebound? Well write Sunday May 6 in your diaries and keep an eye on the markets; it could be back to the future, again.
European voters are rejecting austerity, which is a blow to Germany and Chancellor Angela Merkel And, judging by the way sharemarkets sold off Monday, investors have been quick to see the dangers from the eurozone’s latest problems. Europe’s recession continues, according to the latest surveys of manufacturing and services released overnight. The eurozone preliminary composite purchasing managers’ index, or PMI, fell to a five-month low of 47.4 in April from 49.1 in March, defying forecasts for a rise to 49.3. The manufacturing PMI gauge dropped to a 34-month low, while the services gauge posted its lowest reading in five months.
Throw in political instability driven by an unwillingness to cut spending and it’s a toxic outlook for Europe and the global economy. In many ways we could be seeing the start of a replay of 2010 and 2011.
It’s not Spain or Italy that we should worrying about as threats to the eurozone’s tenuous recent stability. It’s France, the Netherlands, Greece (again) and Ireland that look as the new flashpoints with the added irony that many of the same people who were bagging the Greeks, Italians and Spanish for being greedy, are now adopting the same stance in rejecting the need for big cuts in spending in France and the Netherlands.
The financial pressures on Spain and Italy will be forgotten for the next fortnight and more while the second round of the French presidential campaign is fought and decided on May 6, which is also when Greece goes to the polls.
At the same time the Netherlands government is tottering and faces a possible election in June that will be fought over austerity and spending cuts to bring the country’s budget deficit under control.
Sunday’s French Presidential poll has grabbed all the attention as a possible final straw that breaks open the eurozone after months of near misses. The first round of the presidential poll saw the Socialist candidate, Francois Hollande lead President Nicolas Sarkozy, 28.2% to 27%.
Sarkozy is the first President in the 54-year history of the present electoral system, who will have to come from behind to retain his job. But if he loses, he would be the 11th eurozone leader to be swept out since the start of the bloc’s debt crisis in late 2009 and the first French president to lose a re-election bid in more than 30 years. And, after the May 6 second round, elections will be held in June for France’s national parliament and its in those polls that the National Front and Communists could make gains and place further pressure on the new President over the euro and the eurozone.
The rest of the eurozone and the world are starting to watch nervously. If Sarkozy doesn’t win, Germany will be friendless in Europe, especially with the Netherlands’ government collapsing after the hard-right opportunist, Geert Wilders and his Freedom Party pulled out of budget cut talks at the weekend, saying it was not in the Netherlands’ interest to meet the deficit limit of 3% imposed by the new European fiscal pact. The loss of Wilders’ support left the government led by Mark Rutte, the Liberal prime minister, with just over a third of the seats in parliament. He stepped down on Monday and elections loom for either June 27. A new budget has to be passed by parliament with a decision tonight on a caretaker budget.
No wonder the Fitch ratings group put the country’s rating on credit watch negative last week.
And would you believe it, Greece could end up as the least threatening of the elections, although you wouldn’t put your money on it. Reuters reported at the weekend that Greece’s two ruling parties (which were the only major political groups to back the bailouts) are recovering in opinion polls and could actually retain government after looking gone for all money a month ago.
Reuters said that public opinion polls suggest the ruling conservative New Democracy (ND) and Socialist PASOK parties have begun to claw back support despite voter anger with austerity cuts. “One poll, by Marc for Ethnos, put support for ND at 21.9% or 108 seats, up from 17% in February, and backing for PASOK at 17.8% or 47 seats, up from 9.8% in February. It said 80% of voters were certain or pretty certain of the way they would vote.”
And after all this is the vote by Ireland on the austerity pact on May 31. That vote can’t sink the pact (it now needs only a majority of EU members, not all to vote for it), but strong “no” sentiment in France, the Netherlands and Greece could add pressure on Germany and the euro, and through them, the global economy, just as we saw in 2010 and 2011.
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