Election of anti-austerity François Hollande in France and hung parliament in Greece create uncertainty about eurozone debt crisis
Asian stock markets have been pummelled by election results in France and Greece that have heightened uncertainty about Europe’s ability to solve its debt crisis.
The results threaten the fragile political consensus that has kept intact Europe’s currency bloc through more than two years of crisis and raise pressure on Germany to take a more growth-oriented approach to the crisis.
Signs of a faltering economic recovery in the US compounded the dour mood while oil slid below $97 a barrel. Japan’s Nikkei 225 index plunged 2.6% to 9,134.26 and Hong Kong’s Hang Seng fell 2.4% to 20,582.24.
The Australian dollar slipped to a four-month low near $1.0111 against the US dollar on Monday while the euro fell to its lowest level since 25 January of $1.2955.
Election results in Greece sent tremors throughout Europe as voters punished the parties responsible for highly unpopular austerity measures brought in to prevent the country from defaulting on its massive debts. No political party won enough votes to form a government, leaving the political and financial future of the country in serious doubt.
In France, President Nicolas Sarkozy lost to the Socialist candidate, François Hollande, who has criticised the country’s austerity programme and wants to boost government spending.
Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said the election results were likely to heighten political instability and market volatility.
Australia’s S&P/ASX 200 lost 1.8% to 4,316.20 and South Korea’s Kospi shed 1.7% to 1,955.53.
“The issue is that in Greece the outcome raises the level of uncertainty a lot, because it’s not clear who can form the government or in fact how long they will last, and what their attitude to the current agreements that the Greek government had reached would be,” said Richard Yetsenga, head of global markets at ANZ Research.
“The French outcome was as expected. The markets have already shifted to a view that austerity on its own wasn’t the right policy mix and that other things needed to be considered.”
Jeff Sica, president of SICA Wealth Management, said: “Austerity will not work to solve Europe’s debt crisis. However, shifting austerity to higher earners and business will accelerate the debt crisis.”
Merkel has invited Hollande to visit Berlin as soon he can for a meeting that would set the groundwork for a consensus on growth policies vital to the eurozone’s future health.
“The Merkel/Hollande initiative will never materialise due to Hollande and Merkel being polar opposites with no chance to agree on anything,” Sica said.